AINS 101 ASSOCIATE IN GENERAL

AINS 101 ASSOCIATE IN GENERAL

INSURANCE PRACTICE EXAM 1

QUESTIONS AND CORRECT ANSWERS

(VERIFIED ANSWERS) PLUS RATIONALES

2025

• What is the primary purpose of insurance?
• To eliminate risk
• To transfer risk
• To retain risk
• To create risk
• To transfer risk

Insurance allows individuals or businesses to transfer financial risk to an insurer in exchange for a premium.

• Which of the following is considered a speculative risk?
• Fire damage 1 / 3

• Theft
• Stock investment
• Flood
• Stock investment

Speculative risks involve the chance of loss or gain and are typically not insurable.

3. A hazard that results from a person’s indifferent attitude is a:

• Physical hazard
• Moral hazard
• Morale hazard
• Legal hazard
• Morale hazard

A morale hazard arises from carelessness or indifference to loss because of the existence of insurance.

• An insurer must be able to reasonably predict future losses. This is

known as:

• Indemnification
• Loss pooling
• Law of large numbers
• Risk retention
• Law of large numbers

The law of large numbers enables insurers to predict losses and set premiums accurately. 2 / 3

5. A legal contract must include all of the following elements EXCEPT:

• Agreement
• Competent parties
• Equal consideration
• Legal purpose
• Equal consideration

Insurance contracts are unilateral and do not require equal consideration from both parties.

• Which of the following is a contract of adhesion?
• Lease
• Warranty
• Insurance policy
• Bill of sale
• Insurance policy

An insurance policy is drafted by the insurer and accepted by the insured without negotiation.

• What type of insurer is owned by its policyholders?
• Stock insurer
• Reciprocal insurer
• Mutual insurer
• Lloyd’s association
• Mutual insurer
• / 3