AINS 101 Exam Prep Review Questions and Answers 100% Correct
1. Loss exposure: any condition or situation that presents a possibility of loss, whether
d d d d d d d d d d d d d
or not an actual loss occurs
d d d d d
2. Premium: the price of the insurance coverage provided for a specified period
d d d d d d d d d d d
3. Indemnify: to restore a party who has sustained a loss to the same financial position t
d d d d d d d d d d d d d d d
hat party held before the loss occurred
d d d d d d
4. Insured: any person or organization who is insured under an insurance policy
d d d d d d d d d d d
5. Property-
casualty insurance: one of the two main sectors of the insurance industry encompassing n
d d d d d d d d d d d d d
umerous types of insurance, most of which cover the financial consequences of damage to
d d d d d d d d d d d d d d
one's own property or legal liability to others
d d d d d d d
6. Life-
health insurance: one of the two main sectors of the insurance industry encompassing n
d d d d d d d d d d d d d
umerous types of insurance that cover the financial
d d d d d d d
7. Stock insurer: an insurer that is owned by its stockholders and formed as a corporati
d d d d d d d d d d d d d d
on for the purpose of earning a profit for the stockholders
d d d d d d d d d d
8. Mutual insurer: an insurer that is owned by its policyholders and formed as a corporati
d d d d d d d d d d d d d d
on for the purpose of providing insurance to them
d d d d d d d d
9. Surplus-lines insurer: a non- d d d
admitted insurer that is eligible to insure risks that have been exported by a surplus lines lice
d d d d d d d d d d d d d d d d
nsee in accordance with a surplus lines law
d d d d d d d
10. Reinsurance: the transfer of insurance risk from one insurer to another through a contrac
d d d d d d d d d d d d d
tual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance pr
d d d d d d d d d d d d d d
emium, to indemnify another insurer (the primary insurer) for some or all of the financial con
d d d d d d d d d d d d d d d
sequences of certain loss exposures covered by the primary's insurance policies
d d d d d d d d d d
11. Pure risk: a chance of loss or no loss, but no chance of gain
d d d d d d d d d d d d d
12. Speculative risk: a chance of loss, no loss, or gain d d d d d d d d d
13. Solvency: the ability of an insurer to meet its financial obligations as they become due,
d d d d d d d d d d d d d d d
even those resulting from insured losses that may be claimed several years in the future
d d d d d d d d d d d d d d
1d/d
18
,14. Income statement: the financial statement that reports an organization's profit or loss f
d d d d d d d d d d d d
or a specific period by comparing the revenues generated with the expenses incurred to produ
d d d d d d d d d d d d d d
ce those revenues
d d
15. Earned premiums: the portion of the written premiums that apply to the part of the polic
d d d d d d d d d d d d d d d
y period that has already occurred
d d d d d
16. Underwriting income: income an insurer earns from premiums paid by policy-
d d d d d d d d d d
holders minus incurred losses and underwriting expenses
d d d d d d d
17. Balance sheet: the financial statement that reports the assets, liabilities, and owner's
d d d d d d d d d d d d
equity of an organization as of a specific date
d d d d d d d d
18. Policyholder's surplus: an insurer's assets minus its liabilities, which repre-
d d d d d d d d d
sents its net worth
d d d d
2d/d
18
, 19. Loss adjustment expenses: the expense that an insurer incurs to investigate, defend, an
d d d d d d d d d d d d
d settle claims according to the terms specified in the insurance policy
d d d d d d d d d d d
20. Assets: types of property, both tangible and intangible, owned by an entity
d d d d d d d d d d d
21. Liabilities: financial obligations, or debts, owned by a company to another entity usually t
d d d d d d d d d d d d d
he policyholder in the case of an insurer
d d d d d d d
22. Investment income: interest, dividends, and net capital gains received by an insurer fr
d d d d d d d d d d d d
om the insurer's financial assets, minus its investment expenses
d d d d d d d d
23. Loss reserve: an estimate of the amount of money the insurer expects to pay in the futu
d d d d d d d d d d d d d d d d
re for losses that have occurred
d d d d d
24. Unearned premium reserve: an insurer liability representing the amount of premium
d d d d d d d d d d
s received from policyholders that are not yet earned
d d d d d d d d
25. Loss ratio: a ratio that measures losses and loss adjustment expenses against earned pr
d d d d d d d d d d d d d
emiums and that reflects the percentage of premiums being consumed by losses
d d d d d d d d d d d
26. Expense ratio: an insurer's incurred underwriting expenses for a given period divided by
d d d d d d d d d d d d
dits written premiums for the same period
d d d d d d
27. Combined ratio: a profitability ratio that indicates whether an insurer has made an under
d d d d d d d d d d d d d
writing loss or gain d d d
28. Independent agency: a business, operated for the benefit of its owner that sells insuranc
d d d d d d d d d d d d d
e, usually as a representative of several unrelated insurers
d d d d d d d d
29. Exclusive agency marketing system: an insurance marketing system under which age
d d d d d d d d d d
nts contract to sell insurance exclusively for one insurer
d d d d d d d d
30. Direct writer marketing system: an insurance marketing system that uses sales age
d d d d d d d d d d d
nts who are direct employees of the insurer
d d d d d d d
31. Distribution channel: the necessary people and physical facilities to support the sale
d d d d d d d d d d d d
of insurance products and services
d d d d
32. Agent: in the agency relationship, the party that is authorized by the principal to act on th
d d d d d d d d d d d d d d d d
e principal's behalf
d d
33. Agency: a legal, consensual relationship that exists when one party, the agent, acts on b
d d d d d d d d d d d d d d
ehalf of another party, the principal
d d d d d
34. Principal: the party in an agency relationship that authorizes the agent to act on that p
d d d d d d d d d d d d d d d
arty's behalf d
3d/d
18
1. Loss exposure: any condition or situation that presents a possibility of loss, whether
d d d d d d d d d d d d d
or not an actual loss occurs
d d d d d
2. Premium: the price of the insurance coverage provided for a specified period
d d d d d d d d d d d
3. Indemnify: to restore a party who has sustained a loss to the same financial position t
d d d d d d d d d d d d d d d
hat party held before the loss occurred
d d d d d d
4. Insured: any person or organization who is insured under an insurance policy
d d d d d d d d d d d
5. Property-
casualty insurance: one of the two main sectors of the insurance industry encompassing n
d d d d d d d d d d d d d
umerous types of insurance, most of which cover the financial consequences of damage to
d d d d d d d d d d d d d d
one's own property or legal liability to others
d d d d d d d
6. Life-
health insurance: one of the two main sectors of the insurance industry encompassing n
d d d d d d d d d d d d d
umerous types of insurance that cover the financial
d d d d d d d
7. Stock insurer: an insurer that is owned by its stockholders and formed as a corporati
d d d d d d d d d d d d d d
on for the purpose of earning a profit for the stockholders
d d d d d d d d d d
8. Mutual insurer: an insurer that is owned by its policyholders and formed as a corporati
d d d d d d d d d d d d d d
on for the purpose of providing insurance to them
d d d d d d d d
9. Surplus-lines insurer: a non- d d d
admitted insurer that is eligible to insure risks that have been exported by a surplus lines lice
d d d d d d d d d d d d d d d d
nsee in accordance with a surplus lines law
d d d d d d d
10. Reinsurance: the transfer of insurance risk from one insurer to another through a contrac
d d d d d d d d d d d d d
tual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance pr
d d d d d d d d d d d d d d
emium, to indemnify another insurer (the primary insurer) for some or all of the financial con
d d d d d d d d d d d d d d d
sequences of certain loss exposures covered by the primary's insurance policies
d d d d d d d d d d
11. Pure risk: a chance of loss or no loss, but no chance of gain
d d d d d d d d d d d d d
12. Speculative risk: a chance of loss, no loss, or gain d d d d d d d d d
13. Solvency: the ability of an insurer to meet its financial obligations as they become due,
d d d d d d d d d d d d d d d
even those resulting from insured losses that may be claimed several years in the future
d d d d d d d d d d d d d d
1d/d
18
,14. Income statement: the financial statement that reports an organization's profit or loss f
d d d d d d d d d d d d
or a specific period by comparing the revenues generated with the expenses incurred to produ
d d d d d d d d d d d d d d
ce those revenues
d d
15. Earned premiums: the portion of the written premiums that apply to the part of the polic
d d d d d d d d d d d d d d d
y period that has already occurred
d d d d d
16. Underwriting income: income an insurer earns from premiums paid by policy-
d d d d d d d d d d
holders minus incurred losses and underwriting expenses
d d d d d d d
17. Balance sheet: the financial statement that reports the assets, liabilities, and owner's
d d d d d d d d d d d d
equity of an organization as of a specific date
d d d d d d d d
18. Policyholder's surplus: an insurer's assets minus its liabilities, which repre-
d d d d d d d d d
sents its net worth
d d d d
2d/d
18
, 19. Loss adjustment expenses: the expense that an insurer incurs to investigate, defend, an
d d d d d d d d d d d d
d settle claims according to the terms specified in the insurance policy
d d d d d d d d d d d
20. Assets: types of property, both tangible and intangible, owned by an entity
d d d d d d d d d d d
21. Liabilities: financial obligations, or debts, owned by a company to another entity usually t
d d d d d d d d d d d d d
he policyholder in the case of an insurer
d d d d d d d
22. Investment income: interest, dividends, and net capital gains received by an insurer fr
d d d d d d d d d d d d
om the insurer's financial assets, minus its investment expenses
d d d d d d d d
23. Loss reserve: an estimate of the amount of money the insurer expects to pay in the futu
d d d d d d d d d d d d d d d d
re for losses that have occurred
d d d d d
24. Unearned premium reserve: an insurer liability representing the amount of premium
d d d d d d d d d d
s received from policyholders that are not yet earned
d d d d d d d d
25. Loss ratio: a ratio that measures losses and loss adjustment expenses against earned pr
d d d d d d d d d d d d d
emiums and that reflects the percentage of premiums being consumed by losses
d d d d d d d d d d d
26. Expense ratio: an insurer's incurred underwriting expenses for a given period divided by
d d d d d d d d d d d d
dits written premiums for the same period
d d d d d d
27. Combined ratio: a profitability ratio that indicates whether an insurer has made an under
d d d d d d d d d d d d d
writing loss or gain d d d
28. Independent agency: a business, operated for the benefit of its owner that sells insuranc
d d d d d d d d d d d d d
e, usually as a representative of several unrelated insurers
d d d d d d d d
29. Exclusive agency marketing system: an insurance marketing system under which age
d d d d d d d d d d
nts contract to sell insurance exclusively for one insurer
d d d d d d d d
30. Direct writer marketing system: an insurance marketing system that uses sales age
d d d d d d d d d d d
nts who are direct employees of the insurer
d d d d d d d
31. Distribution channel: the necessary people and physical facilities to support the sale
d d d d d d d d d d d d
of insurance products and services
d d d d
32. Agent: in the agency relationship, the party that is authorized by the principal to act on th
d d d d d d d d d d d d d d d d
e principal's behalf
d d
33. Agency: a legal, consensual relationship that exists when one party, the agent, acts on b
d d d d d d d d d d d d d d
ehalf of another party, the principal
d d d d d
34. Principal: the party in an agency relationship that authorizes the agent to act on that p
d d d d d d d d d d d d d d d
arty's behalf d
3d/d
18
