AINS 101 Exam Questions
and Answers
1. Which of the following best defines risk in insurance terms?
A. The certainty of loss
B. The possibility of financial loss or uncertainty of outcome
C. The guarantee of profit
D. The elimination of uncertainty
Answer: B. The possibility of financial loss or uncertainty of outcome
2. The primary purpose of insurance is to:
A. Eliminate all risks
B. Transfer risk from the insured to the insurer
C. Increase risk tolerance
D. Create additional profits
Answer: B. Transfer risk from the insured to the insurer
3. What is a pure risk?
A. A risk that may result in a loss or no loss
B. A risk that can lead to profit or loss
C. A speculative investment
D. A guaranteed financial return
Answer: A. A risk that may result in a loss or no loss
4. Which of the following is NOT a method for handling risk?
A. Avoidance
B. Retention
C. Transfer
,D. Speculation
Answer: D. Speculation
5. Which statement best describes risk control?
A. It involves paying losses when they occur
B. It involves reducing the frequency or severity of losses
C. It involves accepting all risks
D. It involves predicting profits
Answer: B. It involves reducing the frequency or severity of losses
6. A deductible is an example of which risk management technique?
A. Avoidance
B. Retention
C. Transfer
D. Hedging
Answer: B. Retention
7. The law of large numbers allows insurers to:
A. Predict individual losses accurately
B. Predict losses across a group more accurately
C. Avoid losses entirely
D. Increase profitability automatically
Answer: B. Predict losses across a group more accurately
8. Which element is necessary for a loss to be insurable?
A. It must be intentional
B. It must be predictable and definite
C. It must result from a gambling activity
,D. It must involve profit potential
Answer: B. It must be predictable and definite
9. A contract of adhesion in insurance means:
A. Both parties draft the contract together
B. The insured can modify contract wording
C. The insurer drafts the policy; insured accepts or rejects
D. The contract cannot be legally enforced
Answer: C. The insurer drafts the policy; insured accepts or rejects
10. What is utmost good faith in insurance?
A. Each party must act honestly and disclose all relevant information
B. Only the insurer must be truthful
C. The insured may omit information
D. The contract is voidable at will
Answer: A. Each party must act honestly and disclose all relevant information
11. Which of the following is a hazard?
A. Fire destroying a building
B. The presence of oily rags near a furnace
C. The insurance policy
D. The premium payment
Answer: B. The presence of oily rags near a furnace
12. The term peril refers to:
A. The cause of a loss
B. The likelihood of loss
C. The amount of deductible
, D. The premium charged
Answer: A. The cause of a loss
13. Which of the following is a moral hazard?
A. Failure to lock doors
B. Dishonest acts by an insured
C. Poor maintenance of property
D. Carelessness
Answer: B. Dishonest acts by an insured
14. An insurance policy is what type of contract?
A. Bilateral
B. Unilateral
C. Reciprocal
D. Mutual
Answer: B. Unilateral
15. In insurance, consideration refers to:
A. The premium paid and the promise to pay losses
B. The deductible amount
C. The length of policy term
D. The insurer’s profits
Answer: A. The premium paid and the promise to pay losses
16. The declarations page of an insurance policy typically includes:
A. The insurer’s financial ratings
B. Policy limits, insured’s name, and coverage period
C. Definitions of insurance terms
and Answers
1. Which of the following best defines risk in insurance terms?
A. The certainty of loss
B. The possibility of financial loss or uncertainty of outcome
C. The guarantee of profit
D. The elimination of uncertainty
Answer: B. The possibility of financial loss or uncertainty of outcome
2. The primary purpose of insurance is to:
A. Eliminate all risks
B. Transfer risk from the insured to the insurer
C. Increase risk tolerance
D. Create additional profits
Answer: B. Transfer risk from the insured to the insurer
3. What is a pure risk?
A. A risk that may result in a loss or no loss
B. A risk that can lead to profit or loss
C. A speculative investment
D. A guaranteed financial return
Answer: A. A risk that may result in a loss or no loss
4. Which of the following is NOT a method for handling risk?
A. Avoidance
B. Retention
C. Transfer
,D. Speculation
Answer: D. Speculation
5. Which statement best describes risk control?
A. It involves paying losses when they occur
B. It involves reducing the frequency or severity of losses
C. It involves accepting all risks
D. It involves predicting profits
Answer: B. It involves reducing the frequency or severity of losses
6. A deductible is an example of which risk management technique?
A. Avoidance
B. Retention
C. Transfer
D. Hedging
Answer: B. Retention
7. The law of large numbers allows insurers to:
A. Predict individual losses accurately
B. Predict losses across a group more accurately
C. Avoid losses entirely
D. Increase profitability automatically
Answer: B. Predict losses across a group more accurately
8. Which element is necessary for a loss to be insurable?
A. It must be intentional
B. It must be predictable and definite
C. It must result from a gambling activity
,D. It must involve profit potential
Answer: B. It must be predictable and definite
9. A contract of adhesion in insurance means:
A. Both parties draft the contract together
B. The insured can modify contract wording
C. The insurer drafts the policy; insured accepts or rejects
D. The contract cannot be legally enforced
Answer: C. The insurer drafts the policy; insured accepts or rejects
10. What is utmost good faith in insurance?
A. Each party must act honestly and disclose all relevant information
B. Only the insurer must be truthful
C. The insured may omit information
D. The contract is voidable at will
Answer: A. Each party must act honestly and disclose all relevant information
11. Which of the following is a hazard?
A. Fire destroying a building
B. The presence of oily rags near a furnace
C. The insurance policy
D. The premium payment
Answer: B. The presence of oily rags near a furnace
12. The term peril refers to:
A. The cause of a loss
B. The likelihood of loss
C. The amount of deductible
, D. The premium charged
Answer: A. The cause of a loss
13. Which of the following is a moral hazard?
A. Failure to lock doors
B. Dishonest acts by an insured
C. Poor maintenance of property
D. Carelessness
Answer: B. Dishonest acts by an insured
14. An insurance policy is what type of contract?
A. Bilateral
B. Unilateral
C. Reciprocal
D. Mutual
Answer: B. Unilateral
15. In insurance, consideration refers to:
A. The premium paid and the promise to pay losses
B. The deductible amount
C. The length of policy term
D. The insurer’s profits
Answer: A. The premium paid and the promise to pay losses
16. The declarations page of an insurance policy typically includes:
A. The insurer’s financial ratings
B. Policy limits, insured’s name, and coverage period
C. Definitions of insurance terms
