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AINS 101 Exam guide over 200 questions on INCREASING
YOUR INSURANCE IQ
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 examples 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. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. 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 requirements.
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. Insurance helps reduce the financial burden to society by compensating accident victims. 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-casualty policies would pay for the employees' injuries and illnesses? Workers compensation insurance A homeowners policy is a type of Personal property-casualty insurance policy. 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 revenues and profits. B. Government programs can meet legitimate public demands unmet by private insurers.
B. Artificial intelligence. C. Artificial intelligence. Jimmy decided to buy a house in his neighborhood that had been foreclosed on by the bank that held the mortgage. He is hoping to do some renovation and repair work on the house, and then sell it for a quick profit. What type of risk is this? Speculative Risk Which one of the following best describes the concept of pooling? A. The financial consequences of unanticipated losses are transferred to an insurer. B. Risk management is concerned with positive and negative risks. C. Insureds share the cost of each other's losses. D. Insurance benefits society as a whole. Insureds share the cost of each other's losses. Which one of the following represents uncertainty about outcomes that can be negative or positive? A. Loss exposure B. Transfer
C. Risk D. Pooling Risk Coverage for money and other business property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by Commercial crime insurance. The insurance agent suggested that Sally's Snack Shop buy a policy that combines property, crime, and liability coverages into one policy. This is referred to as a(n) Commercial Package Policy (CCP) Which one of the following describes the characteristics of a mutual insurance company? A. A corporation owned by policyholders that provides insurance to its policyholders. B. An unincorporated association that provides reciprocal coverage to subscribers. C. An unincorporated association that earns profits for its individual investors. D. A corporation owned by stockholders that earns profits for the stockholders. A corporation owned by policyholders that provides insurance to its policyholders.
computer algorithm continuously monitors each fund's compliance with investment guidelines. If a fund manager violates the investment guidelines, the computer immediately notifies MFC's internal control director, and corrective action is taken. MFC's use of the computer algorithm to monitor investment compliance and to provide notification when corrective action is necessary illustrates use of Artificial Intelligence The primary role of insurance is to Indemnify individuals and organizations for covered losses Which one of the following best describes the concept of pooling? A. Insureds share the cost of each other's losses. B. Risk management is concerned with positive and negative risks. C. The financial consequences of unanticipated losses are transferred to an insurer. D. Insurance benefits society as a whole. Insureds share the cost of each other's losses. A type of insurer that is owned by policyholders and may pay dividends to policyholders as a return of a portion of premiums paid is a Mutual insurer.
The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program? A. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. B. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. C. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. D. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. ABC Company experienced a dramatic ideological shift in corporate policies after a national election. This is an example of which one of the following quadrants of risk? A. Operational risk B. Financial risk C. Strategic risk D. Hazard risk Strategic Risk
A. Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it. B. The U.S. insurance industry is governed by federal laws that protect citizens by leveling the playing field for insurers and policyholders. C. Insurance regulation speaks to the types of risks insurers may cover, but does not play a part in how they invest their profits. D. Insurance regulation prevents insurers from covering catastrophic occurrences so insurers can remain solvent. Insurance regulation protects customers by guaranteeing insurance is available and accessible to everyone who needs it. All of the following appear on an insurer's balance sheet, EXCEPT: A. Liabilities B. Assets C. Net income D. Policyholders' surplus Net income An insurer's balance sheet can best be described as a A. Relationship between revenue and liabilities. B. Snapshot of its financial position.
C. Relationship between assets and expenses. D. Summary of premiums written. Snapshot of its financial position All of the following are categories of liabilities found on an insurer's balance sheet, EXCEPT: A. Loss and loss expense reserves B. Policyholders' surplus C. Unearned premium reserves D. Other liabilities Policyholders' surplus (The major categories of liabilities found on an insurer's financial statements are loss and loss expense reserves, unearned premium reserves, and other liabilities. Policyholders' surplus is not a liability category.) The financial report for Hometown Insurer contains the following information: Earned premiums $4,000, Written premiums $5,000, Net investment income $1,000, Incurred losses $3,000, Incurred underwriting expenses $2,000, What was the Hometown Insurer's combined ratio?
As it continues to grow, Anchoy Insurance is examining other distribution channels to more effectively market its products. Through this experience, which of one the following will Anchoy most likely learn? A. No matter what it selects, Anchoy must use a producer to effectively sell its products. B. Anchoy can use group marketing to target large numbers of recent local college graduates. C. Using call centers will take away its need for customer service representatives or chatbots. D. It will market through banks and financial services when utilizing the exclusive agency distribution channel. Anchoy can use group marketing to target large numbers of recent local college graduates. Spencer Insurance Associates is an independent agency selling primarily homeowners policies. This agency A. Is free to work with as many different insurers as it wants. B. Generally represents its customers rather than insurance companies. C. Can use the policyholder expiration lists, but they are owned by insurers. D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. Is free to work with as many different insurers as it wants.
The key to the direct writer marketing system is that A. Customers purchase insurance through call centers. B. An agency is contracted to sell insurance for one insurer or group of insurers. C. The insurer is using its own employees as producers. D. Customers can get quotes for coverage through web-based portals. The insurer is using its own employees as producers.
One of the reasons for insurance regulation is to prevent destructive competition. In which one of the following scenarios would destructive competition be exhibited? A. North Insurance is trying to break into a specialized type of insurance market that is generally out of range for most customers; North decides to price its coverages commensurate with other insurers offering similar policies. B. South Insurance purposely writes its policies with hard-to-understand terminology that only its agents can explain, so that its insureds will purchase its products without asking a lot of questions. C. West Insurance has had three straight years of record-setting low claims and has accumulated more than expected profits; it plans on the trend continuing and overspends on new long-term investments. D. East Insurance comes up with a new rate structure allowing "preferred customers" discounted policies when they continually re
Office equipment The financial report for Hometown Insurer contains the following information: Earned premiums $4,000, Written premiums $5,000, Net investment income $1,000, Incurred Losses $3,000, Incurred underwriting expense $2,000, What is Hometown Insurer's expense ratio? 2/5 = .4 (40%) The key to the direct writer marketing system is that A. Customers can get quotes for coverage through web-based portals. B. An agency is contracted to sell insurance for one insurer or group of insurers. C. Customers purchase insurance through call centers. D. The insurer is using its own employees as producers. The insurer is using its own employees as producers.
Insuring individuals with a high probability of loss at a cost lower than the insurer would normally charge for that risk because it wasn't aware of the actual risk involved is known as A. Adverse selection. B. Unprofitable business. C. Policyholders' surplus. D. Capacity. Adverse selection. Clare is a commercial lines underwriter. She always tries to follow underwriting guidelines, effectively evaluate loss exposures, and charge adequate premiums. By doing these things, Clare's goal is to ensure A. Adequate policyholders' surplus. B. A significant bonus. C. A collaborative relationship with her producers. D. Adverse selection. Adequate policyholders' surplus. Which one of the following statements is correct regarding the interaction between risk control and other insurer functions?
A. Field Underwriter B. Underwriting Technician C. Corporate Underwriter D. Line Underwriter Corporate Underwriter (Corporate underwriters, sometimes referred to as staff underwriters, perform duties including: developing coverage forms, arranging reinsurance, conducting underwriting audits, researching the market, and revising underwriting guidelines.) As an experienced underwriter, Rick has learned to make every effort to avoid a mistake that can produce insufficient premium to cover losses, or pricing that isn't competitive. Which one of the following underwriting mistakes can often cause these issues? A. Misclassifying exposures B. Recommending the applicant implement risk control measures C. Using predictive models D. Adjusting policy terms and conditions Misclassifying exposures (Misclassification of exposures can produce insufficient premium to cover losses or pricing that isn't competitive.)
Which one of the following is a temporary agreement providing insurance coverage until the formal policy is issued? A. Binder B. Rating classification C. Book of business D. Submission Binder (A binder is a temporary agreement providing insurance coverage until the formal policy is issued.) The size of an employer's loss exposure for workers compensation insurance is based on A. The number of its employees. B. The final premium audit. C. The extent of its operations. D. The amount of its payroll. The amount of its payroll. (The size of an employer's loss exposure for workers compensation insurance is based on the amount of its payroll.) Which one of the following is the fundamental measure of loss exposure used in insurance rating? A. Premium
