AINS 103 CHAPTER 1 ACTUAL TEST PAPER
QUESTIONS AND SOLUTIONS COMPLETE
STUDY GUIDE
●● A fire destroys the kitchen in Rob and Laurie's home. Which
insurance policy would provide coverage for the damage?
a. Homeowners Policy (Personal Liability)
b. Homeowners Policy (Property)
c. Personal Umbrella Policy
d. Personal Auto Policy
Answer: b. Homeowners Policy (Property)
●● Which insurance policy could protect Rob and Laurie's sandwich
shop against losses from employee theft?
a. Workers Compensation
b. Commercial Crime
c. Commercial Property
d. Commercial General Liability
e. Commercial Auto
Answer: b. Commercial Crime
●● The best indication of an insurer's overall financial health is the
,Answer: policyholders surplus (It shows how much cash an insurer has
on hand for emergencies, unexpected losses, and expansion of business)
●● Combined ratio =
Answer: loss ratio + expense ratio
●● expense ratio =
Answer: incurred underwriting expenses / written premiums
●● loss ratio =
Answer: incurred losses (including loss adjustment expenses) / earned
premiums
●● Marco has been approved for a car insurance policy with a low
premium because on his application he gave an address in a low-crime
area. However, the actual address at which he lives and parks his car is
in a high-crime area. What is this an example of?
a. Growing capacity
b. Adverse selection
c. Creating surplus
d. Following underwriting guidelines
Answer: b. Adverse selection
,●● Emily is the underwriter for Marco's account. What is one way she
could detect and minimize instances of adverse selection such as this?
a. Increase auto policy premiums
b. Ensure adequate policyholders' surplus
c. Monitor the book of business for unusual patterns of policy growth or
losses
d. Alter the underwriting guidelines
Answer: c. Monitor the book of business for unusual patterns of policy
growth or losses
●● These underwriters evaluate individual insurance applications and
policy renewals and manage their own books of business. In many ways,
they are the public face of the Underwriting Department
Answer: field underwriters
●● These underwriters make large-scale decisions about coverage,
pricing, lines of business, and the overall risk selection process
Answer: corporate underwriters
●● What do underwriters evaluate to determine the appropriate
classification for a commercial operation?
a. the insurer's book of business
b. specific characteristics of the insured's operation
c. the producer's years of experience on the job
, d. policy holders' surplus
Answer: b. specific characteristics of the insured's operation
●● Exposure unit to the type of insurance it's typically used for:
Each vehicle
Answer: auto
●● Exposure unit to the type of insurance it's typically used for:
Each $100 of insured value
Answer: commercial property
●● Exposure unit to the type of insurance it's typically used for:
Each $1,000 of gross sales
Answer: general liability
●● Exposure unit to the type of insurance it's typically used for:
Each $1,000 of insured value
Answer: homeowners
●● Exposure unit to the type of insurance it's typically used for:
Each $100 of payroll
Answer: workers comp
QUESTIONS AND SOLUTIONS COMPLETE
STUDY GUIDE
●● A fire destroys the kitchen in Rob and Laurie's home. Which
insurance policy would provide coverage for the damage?
a. Homeowners Policy (Personal Liability)
b. Homeowners Policy (Property)
c. Personal Umbrella Policy
d. Personal Auto Policy
Answer: b. Homeowners Policy (Property)
●● Which insurance policy could protect Rob and Laurie's sandwich
shop against losses from employee theft?
a. Workers Compensation
b. Commercial Crime
c. Commercial Property
d. Commercial General Liability
e. Commercial Auto
Answer: b. Commercial Crime
●● The best indication of an insurer's overall financial health is the
,Answer: policyholders surplus (It shows how much cash an insurer has
on hand for emergencies, unexpected losses, and expansion of business)
●● Combined ratio =
Answer: loss ratio + expense ratio
●● expense ratio =
Answer: incurred underwriting expenses / written premiums
●● loss ratio =
Answer: incurred losses (including loss adjustment expenses) / earned
premiums
●● Marco has been approved for a car insurance policy with a low
premium because on his application he gave an address in a low-crime
area. However, the actual address at which he lives and parks his car is
in a high-crime area. What is this an example of?
a. Growing capacity
b. Adverse selection
c. Creating surplus
d. Following underwriting guidelines
Answer: b. Adverse selection
,●● Emily is the underwriter for Marco's account. What is one way she
could detect and minimize instances of adverse selection such as this?
a. Increase auto policy premiums
b. Ensure adequate policyholders' surplus
c. Monitor the book of business for unusual patterns of policy growth or
losses
d. Alter the underwriting guidelines
Answer: c. Monitor the book of business for unusual patterns of policy
growth or losses
●● These underwriters evaluate individual insurance applications and
policy renewals and manage their own books of business. In many ways,
they are the public face of the Underwriting Department
Answer: field underwriters
●● These underwriters make large-scale decisions about coverage,
pricing, lines of business, and the overall risk selection process
Answer: corporate underwriters
●● What do underwriters evaluate to determine the appropriate
classification for a commercial operation?
a. the insurer's book of business
b. specific characteristics of the insured's operation
c. the producer's years of experience on the job
, d. policy holders' surplus
Answer: b. specific characteristics of the insured's operation
●● Exposure unit to the type of insurance it's typically used for:
Each vehicle
Answer: auto
●● Exposure unit to the type of insurance it's typically used for:
Each $100 of insured value
Answer: commercial property
●● Exposure unit to the type of insurance it's typically used for:
Each $1,000 of gross sales
Answer: general liability
●● Exposure unit to the type of insurance it's typically used for:
Each $1,000 of insured value
Answer: homeowners
●● Exposure unit to the type of insurance it's typically used for:
Each $100 of payroll
Answer: workers comp
