AINS 101 ASSOCIATE IN GENERAL
INSURANCE PRACTICE EXAM 2
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
- Which of the following best defines risk in insurance terms?
- A guarantee of loss
- Uncertainty about outcomes that can be insured
- A situation that always causes financial gain
- A known event with predictable results
Rationale: Risk in insurance is defined as uncertainty regarding
financial loss.
2. The principle of indemnity ensures:
- The insured always profits from a loss 1 / 3
- The insured is restored to their original financial position
- Insurers charge the same premiums to all insureds
- Only speculative risks are covered
Rationale: Indemnity restores the insured to the financial position
they were in before the loss, without profit.
3. A hazard is best described as:
- A guaranteed loss
- A condition that increases the likelihood or severity of a loss
- The value of the insured asset
- A type of insurance coverage
Rationale: Hazards are conditions that increase the chance of loss,
such as icy roads or faulty wiring.
4. A peril is:
- A clause in an insurance policy
- The cause of loss
- A type of risk retention
- A legal doctrine
Rationale: Perils are specific causes of loss like fire, theft, or
windstorm.
- Which of the following is an example of a physical hazard?
- Dishonesty
- Faulty electrical wiring
- Poor business decisions 2 / 3
- Gambling addiction
Rationale: A physical hazard is a tangible condition, like faulty
wiring, that increases the chance of loss.
6. Underwriting is primarily responsible for:
- Paying claims
- Marketing policies
- Assessing risk and determining policy terms
- Reinsuring policies
Rationale: Underwriters assess risk, set premiums, and determine
terms to ensure proper risk selection.
7. Adverse selection occurs when:
- Only safe risks are selected
- Insurers lower premiums across the board
- High-risk individuals are more likely to purchase insurance
- Agents select risks on their own
Rationale: Adverse selection is when those most likely to experience
a loss are also most likely to seek insurance.
8. The law of large numbers helps insurers to:
- Predict losses more accurately
- Increase premiums
- Decrease market competition
- Determine profits
- / 3