AINS 101 Exam Prep Questions and Correct Rationalized Answers

AINS 101 Exam Prep Questions and Correct Rationalized Answers


1. As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. H
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owever, her friend Mehmet tells her not to skimp on insurance, because it will help mana
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ge her cash flows. Which one of the following exam- ples best illustrates Mehmet's point?
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A. Ciara needs her car to get to her job, and she needs her job to make car payments a
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nd pay for her car insurance.
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B. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of repl
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acing it. s


C. When her car's transmission goes out a month after the warranty expires, Ciara is face
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d with a $1,100 repair bill.
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D. Ciara finds it difficult to come up with a $787 auto insurance premium every six months.:
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When her car's windshield breaks, Ciara has to pay only $100 of the
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$600 cost of replacing it.
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2. Which one of the following statements is correct regarding the benefits provided by
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insurance?
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A. Insurance reduces the financial consequences of loss exposures but not the related
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uncertainty.
B. The primary role of insurance is to meet mandatory insurance require- ments.
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C. The reduction in losses paid by insurers due to risk control measures benefits ind
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ividual insureds but not society as a whole.
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D. Insurance helps reduce the financial burden to society by compensating accident vict
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ims.: Insurance helps reduce the financial burden to society by com-
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spensating accident victims. s s


3. Shelton Industries experienced a fire in its manufacturing plant. Several employees su
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ffered burns and smoke inhalation injuries as they tried to escape the building.Which one
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of Shelton Industries' commercial property-ca-
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ssualty policies would pay for the employees' injuries and illnesses?: Workers compensati
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,on insurance
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4. A homeowners policy is a type of: Personal property-casualty insurance policy.
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5. Which one of the following correctly describes a reason for government involvemen
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t in property-casualty insurance?
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A. Selling insurance provides the government with a non-tax source of rev-
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enues and profits.
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B. Government programs can meet legitimate public demands unmet by pri-
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vate insurers.
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,C. Competition from government plans keeps private insurer's premiums competitiv s s s s s s s s


e.
D. Preventing high- s


risk individuals or activities from being insured is in the public interest.: Government progr
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ams can meet legitimate public demands unmet by private insurers.
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6. Insurance Company wrote a commercial liability policy for a manufacturer of off-
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road motorcycles. The potential costs of the insured's loss exposure exceed Insurance C
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ompany's capacity. Insurance Company could consider which one of the following types of
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contractual transferring agreement to meet its needs?: Reinsurance
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7. In an effort to reduce expenses, increase profitability, and reduce human errors; ABC I
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nsurance Company decided to automate most of its personal lines underwriting function.
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The company now uses standardized application forms that are submitted electronically
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to one of the company's regional offices. At each regional office, a computer with a scann
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er reads the appli-
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scations.The computer has been programmed with acceptable answers to the questions. I
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f the answers on the application are all acceptable, the policy is automatically issued. Re
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jected applications are automatically forwarded to a human underwriter who reviews the
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m.The use of this technology has reduced the company's expense ratio by two and a half pe
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rcent, and reduced the time it takes to issue a policy. ABC Insurance Company's use of co
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mputers to evaluate applications electronically is an application of
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A. Radiant sensors. s


B. Artificial intelligence. s


C. Risk management information systems. s s s


D. Actuator technology.: Artificial intelligence. s s s


8. Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the ban
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k that held the mortgage. He is hoping to do some renovation and repair work on the hous
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e, and then sell it for a quick profit. What type of risk is this?: Speculative Risk
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9. Which one of the following best describes the concept of pooling?
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A. The financial consequences of unanticipated losses are transferred to an insurer.
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, B. Risk management is concerned with positive and negative risks.
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C. Insureds share the cost of each other's losses.
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D. Insurance benefits society as a whole.: Insureds share the cost of each other's losses.
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