AINS 21 PRACTICE EXAM 2 QUESTIONS AND ANSWERS

When selecting a distribution channel, which one of the following is an important consideration with regard to customer needs and characteristics? A) The commission rate paid to producers B) The ease and accessibility within the channel C) The insurer's financial rating D) The availability of reinsurance Answer: B) The ease and accessibility within the channel Explanation: The text states that when selecting a distribution channel, an important consideration regarding customer needs and characteristics is "the ease and accessibility within the channel." Which of the following statements is correct regarding characteristics of ideally insurable loss exposures? A) Loss exposures should be unique and dissimilar to allow for customized pricing B) Ideally, loss exposures should be spread across a large number of similar exposure units within the same period C) Insurable loss exposures must have a high probability of catastrophic loss D) Loss exposures should be intentionally caused to ensure predictability Answer: B) Ideally, loss exposures should be spread across a large number of similar exposure units within the same period Explanation: The highlighted answer specifies that for ideal insurability, loss exposures should be spread across a large number of similar exposure units within the same period. The type of insurance that provides periodic income payments to an insured who is unable to work because of sickness or injury is: A) Health insuranceB) Life insurance C) Disability income insurance D) Workers compensation insurance Answer: C) Disability income insurance Explanation: The text directly identifies "Disability income insurance" as the type that provides periodic income payments when someone is unable to work due to sickness or injury. One major downside of individuals using retention alone (without insurance) to treat loss exposures is: A) Increased paperwork B) The potential for financial ruin C) Higher premiums in the future D) Lack of access to risk control services Answer: B) The potential for financial ruin Explanation: The highlighted answer states that a major downside of using retention alone is "The potential for financial ruin." What is a loss exposure? A) A specific insurance policy provision B) Any condition that presents the possibility of a loss C) A historical record of past losses D) A method for calculating insurance premiums Answer: B) Any condition that presents the possibility of a loss Explanation: The text defines a loss exposure as "Any condition that presents the possibility of a loss." Liability coverage for loss exposures arising from a business organization's premises and operations, its products, or its completed work is typically provided by: A) Commercial general liability insurance B) Professional liability insurance D) Commercial crime insuranceAnswer: A) Commercial general liability insurance Explanation: The highlighted answer specifies that such coverage is typically provided by "Commercial general liability insurance."