FP512 Insurance, Risk Management, Employee Benefits Exam
Verified Exam Questions and Answers Latest update 2026/2027
Question:
PURPOSE OF INSURANCE -
Answer:
Insurance is a device used to
manage risk by having a large pool of people share in the financial losses suffered by members
of the pool
a. The larger the number of members in the group, the greater the probability that actual loss
experience will equal the expected loss experience
b. Insurers cannot predict who is going to experience a loss, but they can predict with reasonable
certainty how many losses will occur and set realistic premium rates
Question:
Risk -
Answer:
· A risk represents the possibility of a loss-or a negative
deviation from a desired outcome.
o EX: lose your home·
Question:
Peril -
Answer:
Cause of financial loss
o EX: Hurricane, flood, fire
Question:
Hazard + 3 Types -
,Answer:
· a hazard increases the potential for loss
o EX: oily shop rags next to the space heater
a. Physical hazard-physical characteristics of the person or property that increase the chance of
loss (e.g., oily rags left near a furnace or high blood pressure)
b. Moral hazard-the chance of loss from dishonesty (e.g., a person intentionally causes a loss or
overstates the amount of the loss when a peril occurs)
c. Morale hazard-indifference to loss (due to existence of insurance), which creates
carelessness and increases the chance of loss (e.g., failure to lock car doors)
Question:
Deductible -
Answer:
A deductible is a stated amount of money the insured
is required to pay on a loss before the insurer will make any payments under the policy
Question:
Exclusions -
Answer:
a. Those perils that are not covered in a policy
b. Examples are wars, earthquakes, and floods
Question:
Riders and endorsements -
Answer:
two terms used interchangeably
a. Describe written additions to an insurance contract
b. Provide a means to correct a policy in the case of a conflicting term
Question:
Financial Risk -
Answer:
risk that may cause financial loss
,Question:
Nonfinancial Fisks -
Answer:
exposure to a risk that does not cause financial
loss (e.g., pain and suffering)
Question:
Static Risk -
Answer:
o result from factors other than changes in the
economy. They occur regularly and can be insured EX: earthquakes, floods
Question:
Dynamic Risk -
Answer:
result of changes in the economy. Insurance cannot
cover.
EX: change in business cycle, inflation
Question:
Fundamental Risk -
Answer:
affect a large group of people.
EX: recession, earthquake
Question:
Particular Risk -
Answer:
affects individuals or a small group of people
Question:
Pure Risk -
, Answer:
involves only the chance of loss or no loss; in other
words, there is no chance of gain. Pure risks are insurable.
1.) Personal risk-loss of income or asset resulting from the loss of ability to earn income caused
by a disability, death, or sickness
2.) Property risk-direct or indirect loss to the property itself from theft or destruction (e.g., fire
or accident)
3.) Liability risk-intentional or unintentional injury to property or others (e.g., tort liability or
loss of a civil suit)
4.) Risk from the failure of others-failure to meet or follow through on an obligation (e.g.,
breach of contract)
Question:
Speculative Risk -
Answer:
involves the chance of both loss or gain (e.g.,
gambling) and is not insurable
Question:
Six steps of the risk management process -
Answer:
a. Determine the
objectives of the risk management program
b. Identify the risks to which the subject is exposed
c. Evaluate the identified risks as to the probability of occurrence and potential loss
d. Determine alternatives for managing risks and select the most appropriate alternative for each
risk
e. Implement the most appropriate alternative
f. Evaluate and review periodically
Question:
Risk retention -
Verified Exam Questions and Answers Latest update 2026/2027
Question:
PURPOSE OF INSURANCE -
Answer:
Insurance is a device used to
manage risk by having a large pool of people share in the financial losses suffered by members
of the pool
a. The larger the number of members in the group, the greater the probability that actual loss
experience will equal the expected loss experience
b. Insurers cannot predict who is going to experience a loss, but they can predict with reasonable
certainty how many losses will occur and set realistic premium rates
Question:
Risk -
Answer:
· A risk represents the possibility of a loss-or a negative
deviation from a desired outcome.
o EX: lose your home·
Question:
Peril -
Answer:
Cause of financial loss
o EX: Hurricane, flood, fire
Question:
Hazard + 3 Types -
,Answer:
· a hazard increases the potential for loss
o EX: oily shop rags next to the space heater
a. Physical hazard-physical characteristics of the person or property that increase the chance of
loss (e.g., oily rags left near a furnace or high blood pressure)
b. Moral hazard-the chance of loss from dishonesty (e.g., a person intentionally causes a loss or
overstates the amount of the loss when a peril occurs)
c. Morale hazard-indifference to loss (due to existence of insurance), which creates
carelessness and increases the chance of loss (e.g., failure to lock car doors)
Question:
Deductible -
Answer:
A deductible is a stated amount of money the insured
is required to pay on a loss before the insurer will make any payments under the policy
Question:
Exclusions -
Answer:
a. Those perils that are not covered in a policy
b. Examples are wars, earthquakes, and floods
Question:
Riders and endorsements -
Answer:
two terms used interchangeably
a. Describe written additions to an insurance contract
b. Provide a means to correct a policy in the case of a conflicting term
Question:
Financial Risk -
Answer:
risk that may cause financial loss
,Question:
Nonfinancial Fisks -
Answer:
exposure to a risk that does not cause financial
loss (e.g., pain and suffering)
Question:
Static Risk -
Answer:
o result from factors other than changes in the
economy. They occur regularly and can be insured EX: earthquakes, floods
Question:
Dynamic Risk -
Answer:
result of changes in the economy. Insurance cannot
cover.
EX: change in business cycle, inflation
Question:
Fundamental Risk -
Answer:
affect a large group of people.
EX: recession, earthquake
Question:
Particular Risk -
Answer:
affects individuals or a small group of people
Question:
Pure Risk -
, Answer:
involves only the chance of loss or no loss; in other
words, there is no chance of gain. Pure risks are insurable.
1.) Personal risk-loss of income or asset resulting from the loss of ability to earn income caused
by a disability, death, or sickness
2.) Property risk-direct or indirect loss to the property itself from theft or destruction (e.g., fire
or accident)
3.) Liability risk-intentional or unintentional injury to property or others (e.g., tort liability or
loss of a civil suit)
4.) Risk from the failure of others-failure to meet or follow through on an obligation (e.g.,
breach of contract)
Question:
Speculative Risk -
Answer:
involves the chance of both loss or gain (e.g.,
gambling) and is not insurable
Question:
Six steps of the risk management process -
Answer:
a. Determine the
objectives of the risk management program
b. Identify the risks to which the subject is exposed
c. Evaluate the identified risks as to the probability of occurrence and potential loss
d. Determine alternatives for managing risks and select the most appropriate alternative for each
risk
e. Implement the most appropriate alternative
f. Evaluate and review periodically
Question:
Risk retention -
