AINS 101 NEWEST COMPLETE 2025 QUESTION WITH 100 % CORRECT
ANSWERS | VERIFIED
Question 1
The two main sectors of the insurance industry are:
A) Commercial and personal lines
B) Property-casualty insurance and life-health insurance
C) Stock insurers and mutual insurers
D) Admitted and non-admitted markets
E) Primary insurance and reinsurance
Correct Answer: B) Property-casualty insurance and life-health insurance.
Rationale: The insurance industry is broadly divided into two major sectors: one covering
property and liability risks (property-casualty), and the other covering risks related to
human life and health (life-health).
Question 2
An insurance contract is called a "Contract of utmost good faith" because it:
A) Is regulated by state governments
B) Imposes an obligation for ethical practices and behaviors on both parties
C) Is drafted by the insurer and accepted by the insured
D) Requires a payment of premium for a promise to pay losses
E) Must be in writing to be legally enforceable
Correct Answer: B) Imposes an obligation for ethical practices and behaviors on both
parties
Rationale: Utmost good faith means that both the insurer and the insured have a legal duty
to act with complete honesty and to disclose all relevant facts to one another.
Question 3
Earned premiums are shown as revenues on an insurer's income statement because they
represent:
A) The total premium collected for the policy term
B) The portion of the premium that has not yet expired
C) The portion of written premiums corresponding to the coverage already provided
D) The estimated amount of future claims
,E) The profit made on an insurance policy
Correct Answer: C) The portion of written premiums corresponding to the coverage already
provided
Rationale: An insurer only "earns" the premium as the policy period passes and coverage is
provided. This earned portion is considered revenue for that accounting period.
Question 4
If destructive competition were to become widespread in the insurance industry, what would be a
likely outcome for consumers?
A) Lower and more stable prices
B) An increase in the number of available insurers
C) Insurance shortages and insolvencies
D) More comprehensive coverage forms
E) Faster claim payments
Correct Answer: C) Insurance shortages and insolvencies
Rationale: Destructive competition forces insurers to charge inadequate premiums. This can
lead to insurers becoming insolvent and unable to pay claims, or withdrawing from the
market, creating shortages of coverage.
Question 5
Sean caused an injury to a pedestrian, Wilbur. Sean's insurer assigns the claim to an adjuster,
Andrea. In this context, who is the "claimant"?
A) Sean
B) Wilbur
C) Andrea
D) Sean's insurer
E) The police officer who responded
Correct Answer: B) Wilbur
Rationale: The insured is the person covered by the policy (Sean). The claims representative
is the person handling the claim (Andrea). The claimant is the third party who has suffered
a loss and is making a claim against the insured's policy (Wilbur).
, Question 6
Which one of these is most directly associated with a satisfied insurance customer?
A) Higher premium payments
B) More frequent claims
C) Leads and referrals that can be used to generate new business
D) Fewer interactions with the insurance company
E) A more complex policy form
Correct Answer: C) Leads and referrals that can be used to generate new business
Rationale: A satisfied customer is a key source of new business for producers and insurers,
as they are likely to provide positive reviews, leads, and referrals.
Question 7
When a premium auditor conducts an advance audit on a new account, what is a primary task
they perform to assist the underwriting department?
A) Collect the initial premium payment
B) Finalize the audit and determine the final premium
C) Classify the various exposures of the business
D) Investigate any open claims
E) Provide risk control recommendations
Correct Answer: C) Classify the various exposures of the business
Rationale: An advance audit helps the underwriter by verifying and correctly classifying the
insured's operations and exposures before the policy is finalized, ensuring more accurate
initial pricing.
Question 8
Because the insurance company drafts the policy language and the insured has little to no
opportunity to negotiate the terms, an insurance policy is known as a:
A) Contract of utmost good faith
B) Contract of indemnity
C) Unilateral contract
D) Contract of adhesion
E) Personal contract
ANSWERS | VERIFIED
Question 1
The two main sectors of the insurance industry are:
A) Commercial and personal lines
B) Property-casualty insurance and life-health insurance
C) Stock insurers and mutual insurers
D) Admitted and non-admitted markets
E) Primary insurance and reinsurance
Correct Answer: B) Property-casualty insurance and life-health insurance.
Rationale: The insurance industry is broadly divided into two major sectors: one covering
property and liability risks (property-casualty), and the other covering risks related to
human life and health (life-health).
Question 2
An insurance contract is called a "Contract of utmost good faith" because it:
A) Is regulated by state governments
B) Imposes an obligation for ethical practices and behaviors on both parties
C) Is drafted by the insurer and accepted by the insured
D) Requires a payment of premium for a promise to pay losses
E) Must be in writing to be legally enforceable
Correct Answer: B) Imposes an obligation for ethical practices and behaviors on both
parties
Rationale: Utmost good faith means that both the insurer and the insured have a legal duty
to act with complete honesty and to disclose all relevant facts to one another.
Question 3
Earned premiums are shown as revenues on an insurer's income statement because they
represent:
A) The total premium collected for the policy term
B) The portion of the premium that has not yet expired
C) The portion of written premiums corresponding to the coverage already provided
D) The estimated amount of future claims
,E) The profit made on an insurance policy
Correct Answer: C) The portion of written premiums corresponding to the coverage already
provided
Rationale: An insurer only "earns" the premium as the policy period passes and coverage is
provided. This earned portion is considered revenue for that accounting period.
Question 4
If destructive competition were to become widespread in the insurance industry, what would be a
likely outcome for consumers?
A) Lower and more stable prices
B) An increase in the number of available insurers
C) Insurance shortages and insolvencies
D) More comprehensive coverage forms
E) Faster claim payments
Correct Answer: C) Insurance shortages and insolvencies
Rationale: Destructive competition forces insurers to charge inadequate premiums. This can
lead to insurers becoming insolvent and unable to pay claims, or withdrawing from the
market, creating shortages of coverage.
Question 5
Sean caused an injury to a pedestrian, Wilbur. Sean's insurer assigns the claim to an adjuster,
Andrea. In this context, who is the "claimant"?
A) Sean
B) Wilbur
C) Andrea
D) Sean's insurer
E) The police officer who responded
Correct Answer: B) Wilbur
Rationale: The insured is the person covered by the policy (Sean). The claims representative
is the person handling the claim (Andrea). The claimant is the third party who has suffered
a loss and is making a claim against the insured's policy (Wilbur).
, Question 6
Which one of these is most directly associated with a satisfied insurance customer?
A) Higher premium payments
B) More frequent claims
C) Leads and referrals that can be used to generate new business
D) Fewer interactions with the insurance company
E) A more complex policy form
Correct Answer: C) Leads and referrals that can be used to generate new business
Rationale: A satisfied customer is a key source of new business for producers and insurers,
as they are likely to provide positive reviews, leads, and referrals.
Question 7
When a premium auditor conducts an advance audit on a new account, what is a primary task
they perform to assist the underwriting department?
A) Collect the initial premium payment
B) Finalize the audit and determine the final premium
C) Classify the various exposures of the business
D) Investigate any open claims
E) Provide risk control recommendations
Correct Answer: C) Classify the various exposures of the business
Rationale: An advance audit helps the underwriter by verifying and correctly classifying the
insured's operations and exposures before the policy is finalized, ensuring more accurate
initial pricing.
Question 8
Because the insurance company drafts the policy language and the insured has little to no
opportunity to negotiate the terms, an insurance policy is known as a:
A) Contract of utmost good faith
B) Contract of indemnity
C) Unilateral contract
D) Contract of adhesion
E) Personal contract
