CPCU 551 PRACTICE EXAM QUESTIONS
WITH 100% CORRECT ANSWERS
What is typically covered by an unendorsed builder's risk policy? - Answer-Building
materials and supplies
Raw Goods, an organization that supplies raw materials is evaluating its options to
insure a few shipments of goods per year to its distributor. What type of inland/ocean
marine insurance would most likely be most appropriate? - Answer-Trip transit
insurance
An unendorsed Builders Risk Coverage Form is designed to - Answer-Be issued at
policy inception in an amount of insurance equal to the building's completed value
In an equipment breakdown policy, the insurer agrees to pay for direct damage to
covered property under the Property Damage insuring agreement. What is true
regarding the insuring agreement? - Answer-It includes property under the insured's
care, custody, or control for which the insured is legally liable
Gilbert Industries was considering using the Legal Liability Coverage Form (LLCF) to
cover a loss exposure. When using the LLCF, what should be considered when
determining the appropriate limit of insurance? - Answer-The maximum possible loss,
including loss of all covered property of others in Gilbert's care, custody and control -
including damages for loss of use.
Regina often recommends the Value Reporting Form to insureds in the manufacturing
and retail industries. What is an advantage to the Value Reporting Form? - Answer-
Value reporting is an ideal way to insure property values that fluctuate substantially
An equipment breakdown protection form can have internal limitations that apply to
certain types of losses. Which one of the following losses is subject to such a limitation?
- Answer-Spoilage damage resulting from ammonia contamination
The Equipment Breakdown Protection Coverage Form insuring agreement under which
the insurer agrees to pay reasonable costs the insured incurs in stamping merchandise
with the word "Salvage" is - Answer-Brands and Labels
When comparing coverage of the Commercial General Liability (CGL) Coverage Form
with the Legal Liability Coverage Form (LLCF), what difference becomes apparent? -
,Answer-The minimum limit for fire legal liability coverage of $100,000 applies to the
CGL form only
The endorsement that covers the fluctuating values of business personal property
providing differing amounts of insurance for certain time periods is called the - Answer-
Peak Season Limit of Insurance endorsement
Bailee liability and bailees' customer's policies both provide coverage for goods of
others that are in the possession of the insured. What correctly describes the main
difference between these two policies? - Answer-The bailees' customer's policy does
not require legal liability
Most ocean cargo policies cover - Answer-The peril of assailing thieves
All of the following are "perils of the sea" under an ocean marine policy, EXCEPT
Jettison
Groundings
Stranding
Collision - Answer-Jettison
A jewelry dealer with coverage under an Inland Marine dealer's policy was victim of a
break-in where jewelry inventory as well as jewelry left for repairs by customers was
stolen. In addition, six months later, the business suffered another loss when it is
discovered that a new line of earrings that was known to have arrived in the store has
an unexplained disappearance. The dealer's policy will - Answer-Cover the theft loss but
not the unexplained disappearance loss
A shipping company contracted with Cruise Ship Art Galleries for delivery of artwork to
be sold on the ship. The shipping company delivered the artwork directly to each port of
call. Coverage for the artwork was under an inland marine policy. The valuation
provision that would best be applied to a loss to the artwork prior to delivery would be
the - Answer-Agreed value method
While traveling the Pacific Ocean, an ocean freighter was taken possession of by a
gang of pirates. During this take over, cargo and containers were ruined due to the acts
of the pirates. Which principal warranty under an open cargo policy applies? - Answer-
Free of capture and seizure warranty
A dispute between a buyer and seller over the ownership of goods in transit can be
resolved by the - Answer-Terms of sale
Judgment rating is used to rate - Answer-One-of-a-kind risks
Traditionally, common carriers had a high degree of responsibility for customers'
property. What is an exception to common-carriers liability? - Answer-Inherent vice
,A policy that covers the crime loss exposures if financial institutions such as banks,
savings and loan institutions, and insurance companies is - Answer-Financial institution
bond
A widely used financial institution bond is - Answer-Standard Form No. 24
Crime loss exposures of financial institutions are covered by financial institution bonds.
These policies were developed by - Answer-The Surety and Fidelity Association of
America (SFAA)
What is correct with respect to the Inside the Premises - Robbery or Safe Burglary of
Other Property coverage of an ISO Commercial Crime Form? - Answer-It covers
damage to the insured's premises resulting from a covered cause of loss
Loss resulting from the insured's knowing acceptance of a forged check is - Answer-
NOT covered under the Forgery or Alteration insuring agreement
Patents - Answer-Are not covered under the Employee Theft insuring agreement
The special limit of $5,000 per occurrence under the Inside the Premises—Robbery or
Safe Burglary of Other Property coverage under the Commercial Crime Coverage Form
applies to - Answer-Precious metals, pearls, furs
An example of an administrative expense that can minimize the cost of risk is - Answer-
Risk management consulting
The availability of funds to pay for losses is most important to organizations when -
Answer-Operations have been disrupted
A self-supporting solid wall that prevents a fire from passing through or around it is a -
Answer-Fire wall
A building with concrete exterior walls and wooden support beams as defined by
Insurance Services Office, Inc. (ISO) - Answer-Joisted masonry
The analysis step of the risk management process involves considering the four
dimensions of a loss exposure. If any of these dimensions of loss exposure analysis
involve empirical distributions developed from past losses, what needs to be
determined? - Answer-The credibility of the data being used
In theory, liability losses are limited only by the - Answer-Defendant's total wealth
, Customer Mary gave dry cleaner Ike her fur coat so he could remove a large stain. Ike
could not eliminate the stain so he asked restoration specialist Peter to attempt to
remove it. The bailor in this scenario is - Answer-Mary
Jack and Susan own and manage a hotel. They are concerned about their responsibility
for the property of their guests and whether they have an insurable interest in that
property and thus could buy insurance to cover their responsibility. Most courts would
hold that they do have an insurable interest in their guests' property based on the legal
basis of - Answer-Exposure to legal liability
What is the primary advantage of using retention as a risk financing measure to help an
organization meet its risk financing goals? - Answer-Managing the cost of risk
One way of jointly considering frequency and severity is to combine both frequency and
severity into - Answer-A total claims distribution
What type of captive typically operates as a formalized retention plan rather than a
transfer measure? - Answer-Single-parent captive
What is correct with respect to retention's ability to meet risk financing goals? - Answer-
Retention enables an organization to manage its cost of risk
Martin enters a warehouse by smashing a basement window and climbing through the
opening. He steals supplies and a box of petty cash and exits the building through the
same window. This is an example of what type of theft? - Answer-Burglary
If the organization wishes to pre-fund for retained future losses, it must determine the
present value of the expected future losses. Calculating the present value of a future
amount is known as - Answer-Discounting
What is used for a rating plan whereby the insured receives a premium reduction for
agreeing to reimburse the insurer for losses up to a substantial per accident or per
occurrence limit? - Answer-Large deductible plan
Many states require a self-insurer to - Answer-Purchase excess insurance
In insurance terminology, trucks, trailers, buses, fire engines, and ambulances designed
for road use are examples of what category of motor vehicle? - Answer-Autos
Perils are an important aspect of property insurance. What is correct with respect to
perils? - Answer-A peril is the actual means by which property is damaged or destroyed
such as fire, lightning, windstorm, hail or theft.
A commercial building may contain furniture, machinery and equipment, raw materials,
and finished products. What is the term generally used in property insurance policies to
refer to all these types of property? - Answer-Business personal property
WITH 100% CORRECT ANSWERS
What is typically covered by an unendorsed builder's risk policy? - Answer-Building
materials and supplies
Raw Goods, an organization that supplies raw materials is evaluating its options to
insure a few shipments of goods per year to its distributor. What type of inland/ocean
marine insurance would most likely be most appropriate? - Answer-Trip transit
insurance
An unendorsed Builders Risk Coverage Form is designed to - Answer-Be issued at
policy inception in an amount of insurance equal to the building's completed value
In an equipment breakdown policy, the insurer agrees to pay for direct damage to
covered property under the Property Damage insuring agreement. What is true
regarding the insuring agreement? - Answer-It includes property under the insured's
care, custody, or control for which the insured is legally liable
Gilbert Industries was considering using the Legal Liability Coverage Form (LLCF) to
cover a loss exposure. When using the LLCF, what should be considered when
determining the appropriate limit of insurance? - Answer-The maximum possible loss,
including loss of all covered property of others in Gilbert's care, custody and control -
including damages for loss of use.
Regina often recommends the Value Reporting Form to insureds in the manufacturing
and retail industries. What is an advantage to the Value Reporting Form? - Answer-
Value reporting is an ideal way to insure property values that fluctuate substantially
An equipment breakdown protection form can have internal limitations that apply to
certain types of losses. Which one of the following losses is subject to such a limitation?
- Answer-Spoilage damage resulting from ammonia contamination
The Equipment Breakdown Protection Coverage Form insuring agreement under which
the insurer agrees to pay reasonable costs the insured incurs in stamping merchandise
with the word "Salvage" is - Answer-Brands and Labels
When comparing coverage of the Commercial General Liability (CGL) Coverage Form
with the Legal Liability Coverage Form (LLCF), what difference becomes apparent? -
,Answer-The minimum limit for fire legal liability coverage of $100,000 applies to the
CGL form only
The endorsement that covers the fluctuating values of business personal property
providing differing amounts of insurance for certain time periods is called the - Answer-
Peak Season Limit of Insurance endorsement
Bailee liability and bailees' customer's policies both provide coverage for goods of
others that are in the possession of the insured. What correctly describes the main
difference between these two policies? - Answer-The bailees' customer's policy does
not require legal liability
Most ocean cargo policies cover - Answer-The peril of assailing thieves
All of the following are "perils of the sea" under an ocean marine policy, EXCEPT
Jettison
Groundings
Stranding
Collision - Answer-Jettison
A jewelry dealer with coverage under an Inland Marine dealer's policy was victim of a
break-in where jewelry inventory as well as jewelry left for repairs by customers was
stolen. In addition, six months later, the business suffered another loss when it is
discovered that a new line of earrings that was known to have arrived in the store has
an unexplained disappearance. The dealer's policy will - Answer-Cover the theft loss but
not the unexplained disappearance loss
A shipping company contracted with Cruise Ship Art Galleries for delivery of artwork to
be sold on the ship. The shipping company delivered the artwork directly to each port of
call. Coverage for the artwork was under an inland marine policy. The valuation
provision that would best be applied to a loss to the artwork prior to delivery would be
the - Answer-Agreed value method
While traveling the Pacific Ocean, an ocean freighter was taken possession of by a
gang of pirates. During this take over, cargo and containers were ruined due to the acts
of the pirates. Which principal warranty under an open cargo policy applies? - Answer-
Free of capture and seizure warranty
A dispute between a buyer and seller over the ownership of goods in transit can be
resolved by the - Answer-Terms of sale
Judgment rating is used to rate - Answer-One-of-a-kind risks
Traditionally, common carriers had a high degree of responsibility for customers'
property. What is an exception to common-carriers liability? - Answer-Inherent vice
,A policy that covers the crime loss exposures if financial institutions such as banks,
savings and loan institutions, and insurance companies is - Answer-Financial institution
bond
A widely used financial institution bond is - Answer-Standard Form No. 24
Crime loss exposures of financial institutions are covered by financial institution bonds.
These policies were developed by - Answer-The Surety and Fidelity Association of
America (SFAA)
What is correct with respect to the Inside the Premises - Robbery or Safe Burglary of
Other Property coverage of an ISO Commercial Crime Form? - Answer-It covers
damage to the insured's premises resulting from a covered cause of loss
Loss resulting from the insured's knowing acceptance of a forged check is - Answer-
NOT covered under the Forgery or Alteration insuring agreement
Patents - Answer-Are not covered under the Employee Theft insuring agreement
The special limit of $5,000 per occurrence under the Inside the Premises—Robbery or
Safe Burglary of Other Property coverage under the Commercial Crime Coverage Form
applies to - Answer-Precious metals, pearls, furs
An example of an administrative expense that can minimize the cost of risk is - Answer-
Risk management consulting
The availability of funds to pay for losses is most important to organizations when -
Answer-Operations have been disrupted
A self-supporting solid wall that prevents a fire from passing through or around it is a -
Answer-Fire wall
A building with concrete exterior walls and wooden support beams as defined by
Insurance Services Office, Inc. (ISO) - Answer-Joisted masonry
The analysis step of the risk management process involves considering the four
dimensions of a loss exposure. If any of these dimensions of loss exposure analysis
involve empirical distributions developed from past losses, what needs to be
determined? - Answer-The credibility of the data being used
In theory, liability losses are limited only by the - Answer-Defendant's total wealth
, Customer Mary gave dry cleaner Ike her fur coat so he could remove a large stain. Ike
could not eliminate the stain so he asked restoration specialist Peter to attempt to
remove it. The bailor in this scenario is - Answer-Mary
Jack and Susan own and manage a hotel. They are concerned about their responsibility
for the property of their guests and whether they have an insurable interest in that
property and thus could buy insurance to cover their responsibility. Most courts would
hold that they do have an insurable interest in their guests' property based on the legal
basis of - Answer-Exposure to legal liability
What is the primary advantage of using retention as a risk financing measure to help an
organization meet its risk financing goals? - Answer-Managing the cost of risk
One way of jointly considering frequency and severity is to combine both frequency and
severity into - Answer-A total claims distribution
What type of captive typically operates as a formalized retention plan rather than a
transfer measure? - Answer-Single-parent captive
What is correct with respect to retention's ability to meet risk financing goals? - Answer-
Retention enables an organization to manage its cost of risk
Martin enters a warehouse by smashing a basement window and climbing through the
opening. He steals supplies and a box of petty cash and exits the building through the
same window. This is an example of what type of theft? - Answer-Burglary
If the organization wishes to pre-fund for retained future losses, it must determine the
present value of the expected future losses. Calculating the present value of a future
amount is known as - Answer-Discounting
What is used for a rating plan whereby the insured receives a premium reduction for
agreeing to reimburse the insurer for losses up to a substantial per accident or per
occurrence limit? - Answer-Large deductible plan
Many states require a self-insurer to - Answer-Purchase excess insurance
In insurance terminology, trucks, trailers, buses, fire engines, and ambulances designed
for road use are examples of what category of motor vehicle? - Answer-Autos
Perils are an important aspect of property insurance. What is correct with respect to
perils? - Answer-A peril is the actual means by which property is damaged or destroyed
such as fire, lightning, windstorm, hail or theft.
A commercial building may contain furniture, machinery and equipment, raw materials,
and finished products. What is the term generally used in property insurance policies to
refer to all these types of property? - Answer-Business personal property
