AINS 101 EXAM PREPARATION
QUESTIONS WITH VERIFIED ANSWERS
1. What is the primary goal of insurance?
A. To eliminate all risks for individuals and businesses.
B. To guarantee a profit for insurance companies.
C. To spread the risk of financial loss among a large group.
D. To eliminate the need for emergency savings.
Answer: C
Conceptual Explanation: Insurance works by pooling the risks of many individuals or
businesses to spread the financial loss of a few.
2. Which of the following best defines pure risk?
A. A situation that offers the chance of a loss, a gain, or no change.
B. An intentional act designed to cause financial harm.
C. A situation that guarantees a financial profit.
D. A situation that offers only the possibility of loss or no loss.
Answer: D
,Conceptual Explanation: Pure risk involves a chance of loss or no loss, with no possibility
of gain, which makes it insurable.
3. What type of risk involves the possibility of either gain or loss?
A. Subjective risk
B. Pure risk
C. Speculative risk
D. Particular risk
Answer: C
Conceptual Explanation: Speculative risk involves three potential outcomes: loss, gain, or
no change (e.g., gambling or investing).
4. Which of the following is an example of a morale hazard?
A. An icy driveway left un-shoveled during a winter storm.
B. A driver who does not lock their car doors because they have comprehensive insurance.
C. A dishonest employee committing fraud.
D. Worn-out brakes on a delivery truck.
Answer: B
Conceptual Explanation: A morale hazard arises from an attitude of indifference toward
loss, such as taking fewer precautions because of having insurance.
, 5. A dishonest employee stealing company funds is an example of which type of hazard?
A. Physical hazard
B. Moral hazard
C. Morale hazard
D. Legal hazard
Answer: B
Conceptual Explanation: A moral hazard involves intentional acts or dishonesty by an
individual that increases the probability of a loss.
6. Worn-out tires on a commercial vehicle represent which type of hazard?
A. Moral hazard
B. Physical hazard
C. Morale hazard
D. Dynamic hazard
Answer: B
Conceptual Explanation: Physical hazards are tangible conditions that increase the
frequency or severity of a loss, such as worn-out tires.
7. What is the primary purpose of risk management?
A. To minimize the adverse effects of risk at the lowest possible cost.
QUESTIONS WITH VERIFIED ANSWERS
1. What is the primary goal of insurance?
A. To eliminate all risks for individuals and businesses.
B. To guarantee a profit for insurance companies.
C. To spread the risk of financial loss among a large group.
D. To eliminate the need for emergency savings.
Answer: C
Conceptual Explanation: Insurance works by pooling the risks of many individuals or
businesses to spread the financial loss of a few.
2. Which of the following best defines pure risk?
A. A situation that offers the chance of a loss, a gain, or no change.
B. An intentional act designed to cause financial harm.
C. A situation that guarantees a financial profit.
D. A situation that offers only the possibility of loss or no loss.
Answer: D
,Conceptual Explanation: Pure risk involves a chance of loss or no loss, with no possibility
of gain, which makes it insurable.
3. What type of risk involves the possibility of either gain or loss?
A. Subjective risk
B. Pure risk
C. Speculative risk
D. Particular risk
Answer: C
Conceptual Explanation: Speculative risk involves three potential outcomes: loss, gain, or
no change (e.g., gambling or investing).
4. Which of the following is an example of a morale hazard?
A. An icy driveway left un-shoveled during a winter storm.
B. A driver who does not lock their car doors because they have comprehensive insurance.
C. A dishonest employee committing fraud.
D. Worn-out brakes on a delivery truck.
Answer: B
Conceptual Explanation: A morale hazard arises from an attitude of indifference toward
loss, such as taking fewer precautions because of having insurance.
, 5. A dishonest employee stealing company funds is an example of which type of hazard?
A. Physical hazard
B. Moral hazard
C. Morale hazard
D. Legal hazard
Answer: B
Conceptual Explanation: A moral hazard involves intentional acts or dishonesty by an
individual that increases the probability of a loss.
6. Worn-out tires on a commercial vehicle represent which type of hazard?
A. Moral hazard
B. Physical hazard
C. Morale hazard
D. Dynamic hazard
Answer: B
Conceptual Explanation: Physical hazards are tangible conditions that increase the
frequency or severity of a loss, such as worn-out tires.
7. What is the primary purpose of risk management?
A. To minimize the adverse effects of risk at the lowest possible cost.
