AINS 21 Questions and Correct Answers
1. Which one of the following is an opportunity cost of insurance? ANSWER -An
insured's funds that could be invested elsewhere if purchasing insurance were not necessary is an example of an
opportunity cost of insurance.
2. Which one of the following statements is correct regarding the benefits of
insurance? ANSWER -Contractors must usually provide evidence of liability insurance before a construction
contract is granted.
Investment income helps keep insurance premiums at a reasonable level.
3. Which one of the following describes the characteristics of a mutual insurance
company? ANSWER -C. A corporation owned by policyholders that provides insurance to its policyholders.
4. The primary role of insurance is to ANSWER -D. Indemnify individuals and organizations for
covered losses.
5. Sometimes the existence of insurance encourages losses. The result of this
phenomenon is that it ANSWER -D. Increases the total cost of insurance.
6. Sally is a recent college graduate who lives in the suburbs and drives to work
daily in the city. She recognizes that owning a car creates both property damage
and liability exposures for her and at the same time she has the burden of
student loans. For someone in Sally's circumstances the most practical risk
management technique for dealing with her auto-related loss exposures is
ANSWER -D. Risk transfer.
7. Insurance is not the only risk management transfer technique. When circum-
stances are appropriate, transfer can be accomplished through ANSWER -A.
Noninsurance transfer techniques.
8. Retention is often used in combination with insurance as a way of treating
loss exposures. One of the major downsides of individuals using retention
alone is ANSWER -A. The potential for financial ruin.
9. From a risk management viewpoint, insurance is used to ANSWER -B. Transfer the
cost of losses.
10. Some loss exposures are not easy to retain, avoid, or control. Which one
of the following risk management techniques is frequently used to treat such
exposures? ANSWER -Transfer
11. A small business owner concerned about something happening and not
being able to work or earn a living for an extended period of time due to an
, AINS 21 Questions and Correct Answers
accident should purchase ANSWER -D. Disability insurance.
, AINS 21 Questions and Correct Answers
12. Coverage for miscellaneous types of property such as movable property,
goods in domestic transit, and property used in transportation and commu-
nication, typically is provided by ANSWER -Correct. Coverage for miscellaneous types of property,
such movable property, goods in domestic transit, and property used in transportation and communication,
typically is provided by inland marine insurance.
13. Which one of the following is true regarding a homeowners policy? ANSWER -
Correct. A homeowners policy provides both property and liability coverage. This includes coverage for theft of
personal property as well as perils such as wind and lightning.
14. Insurance customers' loss exposures arise out of their activities, as well
as ANSWER -Correct. Insurance customers' loss exposures arise out of their activities as well as their ownership
of various property.
15. Life insurance that provides coverage for a specified period with no cash
value is called ANSWER -Correct. Life insurance that provides coverage for a specified period with no cash value
is called term insurance.
16. A mutual insurance company is owned by ANSWER -Policyholders
17. A stock insurer differs from a reciprocal insurance exchange in which one of
the following ways? ANSWER -A. Stockholders own a stock insurer. Subscribers own a reciprocal insurance
exchange.
18. A company interested in improving cash flow should consider meeting its
insurance needs through which one of the following types of insurance orga-
nizations? ANSWER -Correct. With a captive, instead of paying premiums to an unrelated insurer, a company can
invest its funds until they are needed for claims.
19. All of the following are types of private insurers, EXCEPT: ANSWER -Correct. A
state workers compensation fund is not a private (nongovernmental) insurer.
20. A reinsurance company ANSWER -Correct. The reinsurer assumes some or all of the potential costs
of insured loss exposures of the primary insurer.
21. Which one of the following statements is correct regarding government
involvement in insurance? ANSWER -Correct. Federal and state government are involved in insurance to
facilitate compulsory insurance purchases.
22. State governments can be involved in insurance at various levels. Some
states provide which one of the following types of insurance in competition
with private insurers? ANSWER -C. Workers compensation
1. Which one of the following is an opportunity cost of insurance? ANSWER -An
insured's funds that could be invested elsewhere if purchasing insurance were not necessary is an example of an
opportunity cost of insurance.
2. Which one of the following statements is correct regarding the benefits of
insurance? ANSWER -Contractors must usually provide evidence of liability insurance before a construction
contract is granted.
Investment income helps keep insurance premiums at a reasonable level.
3. Which one of the following describes the characteristics of a mutual insurance
company? ANSWER -C. A corporation owned by policyholders that provides insurance to its policyholders.
4. The primary role of insurance is to ANSWER -D. Indemnify individuals and organizations for
covered losses.
5. Sometimes the existence of insurance encourages losses. The result of this
phenomenon is that it ANSWER -D. Increases the total cost of insurance.
6. Sally is a recent college graduate who lives in the suburbs and drives to work
daily in the city. She recognizes that owning a car creates both property damage
and liability exposures for her and at the same time she has the burden of
student loans. For someone in Sally's circumstances the most practical risk
management technique for dealing with her auto-related loss exposures is
ANSWER -D. Risk transfer.
7. Insurance is not the only risk management transfer technique. When circum-
stances are appropriate, transfer can be accomplished through ANSWER -A.
Noninsurance transfer techniques.
8. Retention is often used in combination with insurance as a way of treating
loss exposures. One of the major downsides of individuals using retention
alone is ANSWER -A. The potential for financial ruin.
9. From a risk management viewpoint, insurance is used to ANSWER -B. Transfer the
cost of losses.
10. Some loss exposures are not easy to retain, avoid, or control. Which one
of the following risk management techniques is frequently used to treat such
exposures? ANSWER -Transfer
11. A small business owner concerned about something happening and not
being able to work or earn a living for an extended period of time due to an
, AINS 21 Questions and Correct Answers
accident should purchase ANSWER -D. Disability insurance.
, AINS 21 Questions and Correct Answers
12. Coverage for miscellaneous types of property such as movable property,
goods in domestic transit, and property used in transportation and commu-
nication, typically is provided by ANSWER -Correct. Coverage for miscellaneous types of property,
such movable property, goods in domestic transit, and property used in transportation and communication,
typically is provided by inland marine insurance.
13. Which one of the following is true regarding a homeowners policy? ANSWER -
Correct. A homeowners policy provides both property and liability coverage. This includes coverage for theft of
personal property as well as perils such as wind and lightning.
14. Insurance customers' loss exposures arise out of their activities, as well
as ANSWER -Correct. Insurance customers' loss exposures arise out of their activities as well as their ownership
of various property.
15. Life insurance that provides coverage for a specified period with no cash
value is called ANSWER -Correct. Life insurance that provides coverage for a specified period with no cash value
is called term insurance.
16. A mutual insurance company is owned by ANSWER -Policyholders
17. A stock insurer differs from a reciprocal insurance exchange in which one of
the following ways? ANSWER -A. Stockholders own a stock insurer. Subscribers own a reciprocal insurance
exchange.
18. A company interested in improving cash flow should consider meeting its
insurance needs through which one of the following types of insurance orga-
nizations? ANSWER -Correct. With a captive, instead of paying premiums to an unrelated insurer, a company can
invest its funds until they are needed for claims.
19. All of the following are types of private insurers, EXCEPT: ANSWER -Correct. A
state workers compensation fund is not a private (nongovernmental) insurer.
20. A reinsurance company ANSWER -Correct. The reinsurer assumes some or all of the potential costs
of insured loss exposures of the primary insurer.
21. Which one of the following statements is correct regarding government
involvement in insurance? ANSWER -Correct. Federal and state government are involved in insurance to
facilitate compulsory insurance purchases.
22. State governments can be involved in insurance at various levels. Some
states provide which one of the following types of insurance in competition
with private insurers? ANSWER -C. Workers compensation
