AINS 103 CHAPTER 1 COMPREHENSIVE
TEST BANK PRACTICE QUESTIONS AND
RATIONALES
●● Risk
Answer: Uncertainty about outcomes, that can be negative OR positive
●● Transfers
Answer: Risk of loss in the form of a policy that is given to another
party
●● Pooling
Answer: Insurers combined all of premiums collected from customers
into a fund that is used to pay losses as they occur
●● Benefits of Insurance
Answer: 1. Pay for Losses
2. Manage Cash Flow Uncertainty
3. Comply with Legal Requirements
4. Promote Risk Control Activity
●● Pay for Losses
,Answer: Indemnifies, restores to pre-loss status, individuals and
organizations for covered losses
●● Manage Cashflow Uncertainty
Answer: As long as loss is covered by insurance, financial effect on
insured's cash flow will be reduced to deductible payments or less
amounts that exceed the policy limits
●● Comply with Legal Requirements
Answer: Ex: Workers compensation and personal auto insurance meet
state legal requirements
●● Promote Risk Control Acitivity
Answer: Policies may require or provide incentives to insureds who
undertake risk control activities. And collected data can be used to
prevent or limit losses
●● Insured
Answer: Person/organization covered by an insurance policy
●● Property Insurance
Answer: Protects an insured's assets by covering the cost of repairing or
replacing property that is damaged, lost, or destroyed
,●● Liability Insurance
Answer: Provides payments for injury to others or damage to others
property for which the insured is legally responsible
●● Life Insurance
Answer: Replaces income earning potential lost through death
●● Health Insurance
Answer: Protects individuals and families from financial losses caused
by sickness and accidents
●● Personal Property - Casualty Insurance
Answer: 1. Homeowners
2. Personal Auto
3. Personal Umbrella
●● Homeowners Insurance
Answer: Provides protection when people's homes and/or belongings are
damaged or stole and liability coverage situations such as family dog
biting a guest
●● Personal Auto Insurance
, Answer: If insured is at fault in an accident, provides coverage for
bodily injury to another person or damage to another person's auto
●● Personal Umbrella Insurance
Answer: Provides additional protection for people with a high potential
for large liability losses
●● Commercial Property - Casualty Insurance
Answer: 1. Commercial Property
2. Commercial Crime
3. Commercial General Liability
4. Commercial Auto
5. Workers Compensation
6. Commercial Umbrella
●● Commercial Property Insurance
Answer: Covers damage to buildings or their contents that results from
fire, vandalism, or other causes of loss
●● Commercial Crime Insurance
Answer: Protects against losses from theft of business property and
money, including employee theft
TEST BANK PRACTICE QUESTIONS AND
RATIONALES
●● Risk
Answer: Uncertainty about outcomes, that can be negative OR positive
●● Transfers
Answer: Risk of loss in the form of a policy that is given to another
party
●● Pooling
Answer: Insurers combined all of premiums collected from customers
into a fund that is used to pay losses as they occur
●● Benefits of Insurance
Answer: 1. Pay for Losses
2. Manage Cash Flow Uncertainty
3. Comply with Legal Requirements
4. Promote Risk Control Activity
●● Pay for Losses
,Answer: Indemnifies, restores to pre-loss status, individuals and
organizations for covered losses
●● Manage Cashflow Uncertainty
Answer: As long as loss is covered by insurance, financial effect on
insured's cash flow will be reduced to deductible payments or less
amounts that exceed the policy limits
●● Comply with Legal Requirements
Answer: Ex: Workers compensation and personal auto insurance meet
state legal requirements
●● Promote Risk Control Acitivity
Answer: Policies may require or provide incentives to insureds who
undertake risk control activities. And collected data can be used to
prevent or limit losses
●● Insured
Answer: Person/organization covered by an insurance policy
●● Property Insurance
Answer: Protects an insured's assets by covering the cost of repairing or
replacing property that is damaged, lost, or destroyed
,●● Liability Insurance
Answer: Provides payments for injury to others or damage to others
property for which the insured is legally responsible
●● Life Insurance
Answer: Replaces income earning potential lost through death
●● Health Insurance
Answer: Protects individuals and families from financial losses caused
by sickness and accidents
●● Personal Property - Casualty Insurance
Answer: 1. Homeowners
2. Personal Auto
3. Personal Umbrella
●● Homeowners Insurance
Answer: Provides protection when people's homes and/or belongings are
damaged or stole and liability coverage situations such as family dog
biting a guest
●● Personal Auto Insurance
, Answer: If insured is at fault in an accident, provides coverage for
bodily injury to another person or damage to another person's auto
●● Personal Umbrella Insurance
Answer: Provides additional protection for people with a high potential
for large liability losses
●● Commercial Property - Casualty Insurance
Answer: 1. Commercial Property
2. Commercial Crime
3. Commercial General Liability
4. Commercial Auto
5. Workers Compensation
6. Commercial Umbrella
●● Commercial Property Insurance
Answer: Covers damage to buildings or their contents that results from
fire, vandalism, or other causes of loss
●● Commercial Crime Insurance
Answer: Protects against losses from theft of business property and
money, including employee theft
