AINS 21 Chapter One Review Questions with Correct Answers
Question 1:
The major roles of insurance
Answer:
A risk management technique, a transfer system, a business, and as a contract between the
insured and the insurer.
Question 2:
Categories of risk management techniques
Answer:
Loss prevention and loss reduction
Question 3:
How does insurance function as a risk transfer system?
Answer:
1.) Insureds transfer the costs of losses to insurers and 2.) Insurers pool premiums and share
the costs of losses
Question 4:
Insurance can be divided into two sectors. What are they?
Answer:
Property-Casualty Insurance and Life-Health Insurance
Question 5:
What is the mechanism through which individuals or business exchange the possibility of a
large loss for the certainty of a much smaller, periodic payment?
Answer:
An insurance policy (this is an example of insurance as a contract)
Question 6:
How does the large law of numbers enable insurers to make predictions about losses?
Answer:
As the number of similar but independent exposure units increases, the relative accuracy of
predictions about future outcomes (losses) also increases.
, Question 7:
Identify 3 prevalent examples of property-casualty insurance
Answer:
Homeowners insurance, automobile insurance, and commercial liability insurance
Question 8:
What are the primary sources of income for insurers?
Answer:
Premiums and investment income (investment income comes from investing premiums)
Question 9:
Identify 3 special characters insurance policies include?
Answer:
Utmost good faith, contract of adhesion, and a contract of indemnity
Question 10:
Describe the property coverage provided by a homeowners policy
Answer:
Homeowners property coverage protects insureds for damage to the home and its contents
caused by fire, wind, lightning, and other causes of loss.
Question 11:
Describe 2 typical personal liability loss exposures and how a personal umbrella policy could
provide needed protection
Answer:
Two typical personal liability loss exposures are bodily injury and property damage. A personal
umbrella policy provides additional liability coverage and could drop down and cover losses not
insured under the underlying policies
Question 12:
Distinguish between the 2 main categories of life insurance
Answer:
Term life insurance provides coverage for a specific period of time (e.g. 10yrs, 20yrs) and its
premiums increase throughout the life of the policy. Permanent life insurance is designed to
remain in effect for the insured's life and has set premiums throughout the policy's life.
Question 1:
The major roles of insurance
Answer:
A risk management technique, a transfer system, a business, and as a contract between the
insured and the insurer.
Question 2:
Categories of risk management techniques
Answer:
Loss prevention and loss reduction
Question 3:
How does insurance function as a risk transfer system?
Answer:
1.) Insureds transfer the costs of losses to insurers and 2.) Insurers pool premiums and share
the costs of losses
Question 4:
Insurance can be divided into two sectors. What are they?
Answer:
Property-Casualty Insurance and Life-Health Insurance
Question 5:
What is the mechanism through which individuals or business exchange the possibility of a
large loss for the certainty of a much smaller, periodic payment?
Answer:
An insurance policy (this is an example of insurance as a contract)
Question 6:
How does the large law of numbers enable insurers to make predictions about losses?
Answer:
As the number of similar but independent exposure units increases, the relative accuracy of
predictions about future outcomes (losses) also increases.
, Question 7:
Identify 3 prevalent examples of property-casualty insurance
Answer:
Homeowners insurance, automobile insurance, and commercial liability insurance
Question 8:
What are the primary sources of income for insurers?
Answer:
Premiums and investment income (investment income comes from investing premiums)
Question 9:
Identify 3 special characters insurance policies include?
Answer:
Utmost good faith, contract of adhesion, and a contract of indemnity
Question 10:
Describe the property coverage provided by a homeowners policy
Answer:
Homeowners property coverage protects insureds for damage to the home and its contents
caused by fire, wind, lightning, and other causes of loss.
Question 11:
Describe 2 typical personal liability loss exposures and how a personal umbrella policy could
provide needed protection
Answer:
Two typical personal liability loss exposures are bodily injury and property damage. A personal
umbrella policy provides additional liability coverage and could drop down and cover losses not
insured under the underlying policies
Question 12:
Distinguish between the 2 main categories of life insurance
Answer:
Term life insurance provides coverage for a specific period of time (e.g. 10yrs, 20yrs) and its
premiums increase throughout the life of the policy. Permanent life insurance is designed to
remain in effect for the insured's life and has set premiums throughout the policy's life.
