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Chartered Property Casualty
Underwriter (CPCU) Examination
Practice Exam 2026 | 100 Questions &
Answers with Detailed Rationales |
Complete CPCU Exam Prep & Study
Guide
1. Which principle of insurance requires the insured to have a financial or
other recognized interest in the subject of insurance?
A. Indemnity
B. Insurable interest
C. Subrogation
D. Contribution
Answer: B. Insurable interest
Rationale: Insurable interest means the policyholder would experience a
financial or other recognized loss if the insured property, person, or interest
were damaged or destroyed.
2. Which principle is intended to restore an insured approximately to the
financial position held before a covered loss?
A. Utmost good faith
B. Adhesion
,C. Indemnity
D. Estoppel
Answer: C. Indemnity
Rationale: The principle of indemnity is designed to compensate for covered loss
without allowing the insured to profit from the loss.
3. What is the primary purpose of underwriting?
A. To settle claims
B. To identify, evaluate, select, and price risks
C. To collect premiums
D. To investigate insurance fraud only
Answer: B. To identify, evaluate, select, and price risks
Rationale: Underwriting involves assessing exposures and determining whether
and under what terms an insurer should accept a risk.
4. Which type of risk involves the possibility of loss or no loss, but not gain?
A. Speculative risk
B. Pure risk
C. Investment risk
D. Entrepreneurial risk
Answer: B. Pure risk
Rationale: Pure risk involves only the possibility of loss or no loss, whereas
speculative risk can result in a gain, loss, or no change.
5. Which characteristic generally makes a loss more suitable for insurance?
A. The loss is highly predictable for one individual
B. The loss is intentional
C. The loss is accidental and measurable
D. The loss affects only one person in a completely unique way
,Answer: C. The loss is accidental and measurable
Rationale: Insurable losses generally should be accidental, definite, measurable,
and sufficiently predictable across a large group of similar exposures.
6. What is the process by which insurers transfer some of their risks to other
insurers?
A. Coinsurance
B. Reinsurance
C. Salvage
D. Subrogation
Answer: B. Reinsurance
Rationale: Reinsurance allows a primary insurer to transfer some of its risk
exposure to a reinsurer in exchange for a premium.
7. Which party is known as the cedent in a reinsurance transaction?
A. The reinsurer
B. The insured
C. The primary insurer transferring risk
D. The insurance regulator
Answer: C. The primary insurer transferring risk
Rationale: The cedent, or ceding insurer, is the insurer that transfers some of its
exposure to a reinsurer.
8. In a property insurance policy, what does the declarations page generally
provide?
A. A detailed history of every claim ever made
B. Policy-specific information such as insured, limits, and effective dates
C. Only exclusions
D. Only definitions
, Answer: B. Policy-specific information such as insured, limits, and effective
dates
Rationale: The declarations identify key information specific to the policy,
including insured parties, coverage limits, deductibles, and policy period.
9. What is the purpose of an insurance policy's exclusions?
A. To expand coverage
B. To identify losses or circumstances that are not covered
C. To establish premium payment dates only
D. To guarantee coverage for all losses
Answer: B. To identify losses or circumstances that are not covered
Rationale: Exclusions define circumstances, causes of loss, property, or
conditions for which the policy does not provide coverage.
10.Which type of property is generally considered real property?
A. Furniture
B. Inventory
C. Land and permanently attached structures
D. Office supplies
Answer: C. Land and permanently attached structures
Rationale: Real property generally consists of land and structures or fixtures
permanently attached to it.
11.What is actual cash value generally understood to mean in property
insurance?
A. Original purchase price
B. Replacement cost without regard to depreciation
C. Replacement cost minus depreciation
D. Market value plus depreciation
Chartered Property Casualty
Underwriter (CPCU) Examination
Practice Exam 2026 | 100 Questions &
Answers with Detailed Rationales |
Complete CPCU Exam Prep & Study
Guide
1. Which principle of insurance requires the insured to have a financial or
other recognized interest in the subject of insurance?
A. Indemnity
B. Insurable interest
C. Subrogation
D. Contribution
Answer: B. Insurable interest
Rationale: Insurable interest means the policyholder would experience a
financial or other recognized loss if the insured property, person, or interest
were damaged or destroyed.
2. Which principle is intended to restore an insured approximately to the
financial position held before a covered loss?
A. Utmost good faith
B. Adhesion
,C. Indemnity
D. Estoppel
Answer: C. Indemnity
Rationale: The principle of indemnity is designed to compensate for covered loss
without allowing the insured to profit from the loss.
3. What is the primary purpose of underwriting?
A. To settle claims
B. To identify, evaluate, select, and price risks
C. To collect premiums
D. To investigate insurance fraud only
Answer: B. To identify, evaluate, select, and price risks
Rationale: Underwriting involves assessing exposures and determining whether
and under what terms an insurer should accept a risk.
4. Which type of risk involves the possibility of loss or no loss, but not gain?
A. Speculative risk
B. Pure risk
C. Investment risk
D. Entrepreneurial risk
Answer: B. Pure risk
Rationale: Pure risk involves only the possibility of loss or no loss, whereas
speculative risk can result in a gain, loss, or no change.
5. Which characteristic generally makes a loss more suitable for insurance?
A. The loss is highly predictable for one individual
B. The loss is intentional
C. The loss is accidental and measurable
D. The loss affects only one person in a completely unique way
,Answer: C. The loss is accidental and measurable
Rationale: Insurable losses generally should be accidental, definite, measurable,
and sufficiently predictable across a large group of similar exposures.
6. What is the process by which insurers transfer some of their risks to other
insurers?
A. Coinsurance
B. Reinsurance
C. Salvage
D. Subrogation
Answer: B. Reinsurance
Rationale: Reinsurance allows a primary insurer to transfer some of its risk
exposure to a reinsurer in exchange for a premium.
7. Which party is known as the cedent in a reinsurance transaction?
A. The reinsurer
B. The insured
C. The primary insurer transferring risk
D. The insurance regulator
Answer: C. The primary insurer transferring risk
Rationale: The cedent, or ceding insurer, is the insurer that transfers some of its
exposure to a reinsurer.
8. In a property insurance policy, what does the declarations page generally
provide?
A. A detailed history of every claim ever made
B. Policy-specific information such as insured, limits, and effective dates
C. Only exclusions
D. Only definitions
, Answer: B. Policy-specific information such as insured, limits, and effective
dates
Rationale: The declarations identify key information specific to the policy,
including insured parties, coverage limits, deductibles, and policy period.
9. What is the purpose of an insurance policy's exclusions?
A. To expand coverage
B. To identify losses or circumstances that are not covered
C. To establish premium payment dates only
D. To guarantee coverage for all losses
Answer: B. To identify losses or circumstances that are not covered
Rationale: Exclusions define circumstances, causes of loss, property, or
conditions for which the policy does not provide coverage.
10.Which type of property is generally considered real property?
A. Furniture
B. Inventory
C. Land and permanently attached structures
D. Office supplies
Answer: C. Land and permanently attached structures
Rationale: Real property generally consists of land and structures or fixtures
permanently attached to it.
11.What is actual cash value generally understood to mean in property
insurance?
A. Original purchase price
B. Replacement cost without regard to depreciation
C. Replacement cost minus depreciation
D. Market value plus depreciation
