AINS 101 EXAM QUESTIONS WITH CORRECT
ANSWERS.
1. As a single mother on a very tight budget, Ciara is tempted to skimp on her
insurance. However, her friend Mehmet tells her not to skimp on insurance,
because it will help manage her cash flows. Which one of the following exam- ples
best illustrates Mehmet's point?
A. Ciara needs her car to get to her job, and she needs her job to make car
payments and pay for her car insurance.
B. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost
of replacing it.
C. When her car's transmission goes out a month after the warranty expires, Ciara
is faced with a $1,100 repair bill.
D. Ciara finds it difficult to come up with a $787 auto insurance premium every six
months
.:Ans- When her car's windshield breaks, Ciara has to pay only $100 of the
$600 cost of replacing it.
2. Which one of the following statements is correct regarding the benefits
,provided by insurance?
A. Insurance reduces the financial consequences of loss exposures but not the
related uncertainty.
B. The primary role of insurance is to meet mandatory insurance require-
ments.
C. The reduction in losses paid by insurers due to risk control measures
benefits individual insureds but not society as a whole.
D. Insurance helps reduce the financial burden to society by compensating
accident victims
.:Ans- Insurance helps reduce the financial burden to society by com- pensating accident
victims.
3. Shelton Industries experienced a fire in its manufacturing plant. Several
employees suffered burns and smoke inhalation injuries as they tried to escape the
building. Which one of Shelton Industries' commercial property-ca- sualty policies
would pay for the employees' injuries and illnesses?: Workers compensation
insurance
4. A homeowners policy is a type of: Personal property-casualty insurance policy.
5. Which one of the following correctly describes a reason for government
,involvement in property-casualty insurance?
A. Selling insurance provides the government with a non-tax source of rev- enues
and profits.
B. Government programs can meet legitimate public demands unmet by pri- vate
insurers.
, C. Competition from government plans keeps private insurer's premiums
competitive.
D. Preventing high-risk individuals or activities from being insured is in the public
interest
.:Ans- Government programs can meet legitimate public demands unmet by private
insurers.
6. Insurance Company wrote a commercial liability policy for a manufacturer of
off-road motorcycles. The potential costs of the insured's loss exposure exceed
Insurance Company's capacity. Insurance Company could consider which one of the
following types of contractual transferring agreement to meet its needs?:
Reinsurance
7. In an effort to reduce expenses, increase profitability, and reduce human errors;
ABC Insurance Company decided to automate most of its personal lines
underwriting function. The company now uses standardized application forms that
are submitted electronically to one of the company's regional offices. At each
regional office, a computer with a scanner reads the appli- cations. The computer
has been programmed with acceptable answers to the questions. If the answers on
the application are all acceptable, the policy is automatically issued. Rejected
applications are automatically forwarded to a human underwriter who reviews
ANSWERS.
1. As a single mother on a very tight budget, Ciara is tempted to skimp on her
insurance. However, her friend Mehmet tells her not to skimp on insurance,
because it will help manage her cash flows. Which one of the following exam- ples
best illustrates Mehmet's point?
A. Ciara needs her car to get to her job, and she needs her job to make car
payments and pay for her car insurance.
B. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost
of replacing it.
C. When her car's transmission goes out a month after the warranty expires, Ciara
is faced with a $1,100 repair bill.
D. Ciara finds it difficult to come up with a $787 auto insurance premium every six
months
.:Ans- When her car's windshield breaks, Ciara has to pay only $100 of the
$600 cost of replacing it.
2. Which one of the following statements is correct regarding the benefits
,provided by insurance?
A. Insurance reduces the financial consequences of loss exposures but not the
related uncertainty.
B. The primary role of insurance is to meet mandatory insurance require-
ments.
C. The reduction in losses paid by insurers due to risk control measures
benefits individual insureds but not society as a whole.
D. Insurance helps reduce the financial burden to society by compensating
accident victims
.:Ans- Insurance helps reduce the financial burden to society by com- pensating accident
victims.
3. Shelton Industries experienced a fire in its manufacturing plant. Several
employees suffered burns and smoke inhalation injuries as they tried to escape the
building. Which one of Shelton Industries' commercial property-ca- sualty policies
would pay for the employees' injuries and illnesses?: Workers compensation
insurance
4. A homeowners policy is a type of: Personal property-casualty insurance policy.
5. Which one of the following correctly describes a reason for government
,involvement in property-casualty insurance?
A. Selling insurance provides the government with a non-tax source of rev- enues
and profits.
B. Government programs can meet legitimate public demands unmet by pri- vate
insurers.
, C. Competition from government plans keeps private insurer's premiums
competitive.
D. Preventing high-risk individuals or activities from being insured is in the public
interest
.:Ans- Government programs can meet legitimate public demands unmet by private
insurers.
6. Insurance Company wrote a commercial liability policy for a manufacturer of
off-road motorcycles. The potential costs of the insured's loss exposure exceed
Insurance Company's capacity. Insurance Company could consider which one of the
following types of contractual transferring agreement to meet its needs?:
Reinsurance
7. In an effort to reduce expenses, increase profitability, and reduce human errors;
ABC Insurance Company decided to automate most of its personal lines
underwriting function. The company now uses standardized application forms that
are submitted electronically to one of the company's regional offices. At each
regional office, a computer with a scanner reads the appli- cations. The computer
has been programmed with acceptable answers to the questions. If the answers on
the application are all acceptable, the policy is automatically issued. Rejected
applications are automatically forwarded to a human underwriter who reviews
