CPCU 500 EXAM STUDY GUIDE 2026
COMPLETE QUESTIONS WITH ANSWERS
CPCU® 500 Exam Study Guide 2026: 100 Questions & Answers
Business, Insurance & Finance
Part 1: Insurance Principles & Regulation
1. What is the primary purpose of indemnification in insurance?
a) To punish the negligent party
b) To restore the insured to their pre-loss financial position ✓
c) To provide a profit from a loss
d) To pay regardless of fault
2. Which insurance principle prevents an insured from collecting more than the actual
loss from all sources combined?
a) Subrogation
b) Insurable Interest
c) Indemnity ✓
d) Utmost Good Faith
3. The principle stating that the insured must be truthful and disclose all material facts is:
a) Indemnity
b) Subrogation
c) Utmost Good Faith (Uberrimae Fidei) ✓
d) Proximate Cause
4. What is the term for the insurer's right to recover a loss payment from a negligent
third party?
a) Contribution
b) Reimbursement
c) Subrogation ✓
d) Salvage
5. An insurance contract is considered this type of contract because one party's
performance is contingent on an uncertain event.
a) Aleatory ✓
, b) Adhesion
c) Unilateral
d) Conditional
Part 2: Risk Management & Legal Concepts
6. Which risk management technique involves accepting the potential loss and budgeting
for it?
a) Avoidance
b) Retention ✓
c) Transfer
d) Reduction
7. Pure risk is best described as a situation that involves:
a) Chance of loss or no loss, but no chance of gain ✓
b) Chance of gain or loss
c) Only the chance of loss
d) A speculative opportunity
8. The legal doctrine that may prevent an injured party from recovering damages if they
are partially at fault is:
a) Strict Liability
b) Vicarious Liability
c) Comparative Negligence ✓
d) Absolute Liability
9. What is the primary goal of tort law?
a) To punish criminals
b) To enforce contracts
c) To compensate injured parties for wrongful acts ✓
d) To regulate business conduct
10. Vicarious liability most commonly applies to the relationship between:
a) Manufacturer and consumer
b) Employer and employee ✓
c) Landlord and tenant
d) Borrower and lender
,Part 3: Property & Casualty Insurance
11. In a commercial property policy, what does the term "business income" (time
element) coverage protect against?
a) Physical damage to inventory
b) Loss of income due to a covered suspension of operations ✓
c) Employee theft
d) Liability for customer injuries
12. The cause of loss form that provides the broadest named perils coverage is:
a) Basic
b) Broad ✓
c) Special
d) Earthquake
13. Which commercial auto coverage form covers liability for injuries or damage caused by
the insured's vehicles?
a) Coverage Form A
b) Coverage Form B
c) Business Auto Coverage Form ✓
d) Garage Coverage Form
14. What is the purpose of an "other insurance" clause in a policy?
a) To define who is an insured
b) To establish how losses are paid when multiple policies cover the same risk ✓
c) To list excluded perils
d) To set policy limits
15. A standard Workers' Compensation policy covers:
a) Intentional injuries by the employer
b) Employee injuries arising out of and in the course of employment ✓
c) Injuries to independent contractors
d) Third-party liability for workplace accidents
Part 4: Insurance Operations & Accounting
16. The ratio that measures an insurer's underwriting profitability is:
a) Loss Ratio
b) Expense Ratio
, c) Combined Ratio ✓
d) Investment Yield Ratio
17. What does "ceded" refer to in reinsurance?
a) The reinsurer accepting risk from the primary insurer
b) The primary insurer transferring risk to the reinsurer ✓
c) The insured transferring risk to the insurer
d) The broker placing risk with an insurer
18. The primary purpose of an insurer's loss reserve is to:
a) Pay shareholder dividends
b) Cover future claims that have already occurred ✓
c) Pay agent commissions
d) Fund marketing campaigns
19. Which accounting method do property-casualty insurers primarily use?
a) Cash Basis
b) Generally Accepted Accounting Principles (GAAP)
c) Statutory Accounting Principles (SAP) ✓
d) Tax Basis
20. What is the main function of an underwriter?
a) To sell policies
b) To investigate claims
c) To select and classify risks ✓
d) To manage investments
Part 5: Financial Concepts & Markets
21. The measure of a company's ability to meet its short-term obligations is:
a) Leverage Ratio
b) Profit Margin
c) Liquidity Ratio ✓
d) Return on Equity (ROE)
22. A bond is best described as:
a) An ownership share in a company
b) A short-term money market instrument
COMPLETE QUESTIONS WITH ANSWERS
CPCU® 500 Exam Study Guide 2026: 100 Questions & Answers
Business, Insurance & Finance
Part 1: Insurance Principles & Regulation
1. What is the primary purpose of indemnification in insurance?
a) To punish the negligent party
b) To restore the insured to their pre-loss financial position ✓
c) To provide a profit from a loss
d) To pay regardless of fault
2. Which insurance principle prevents an insured from collecting more than the actual
loss from all sources combined?
a) Subrogation
b) Insurable Interest
c) Indemnity ✓
d) Utmost Good Faith
3. The principle stating that the insured must be truthful and disclose all material facts is:
a) Indemnity
b) Subrogation
c) Utmost Good Faith (Uberrimae Fidei) ✓
d) Proximate Cause
4. What is the term for the insurer's right to recover a loss payment from a negligent
third party?
a) Contribution
b) Reimbursement
c) Subrogation ✓
d) Salvage
5. An insurance contract is considered this type of contract because one party's
performance is contingent on an uncertain event.
a) Aleatory ✓
, b) Adhesion
c) Unilateral
d) Conditional
Part 2: Risk Management & Legal Concepts
6. Which risk management technique involves accepting the potential loss and budgeting
for it?
a) Avoidance
b) Retention ✓
c) Transfer
d) Reduction
7. Pure risk is best described as a situation that involves:
a) Chance of loss or no loss, but no chance of gain ✓
b) Chance of gain or loss
c) Only the chance of loss
d) A speculative opportunity
8. The legal doctrine that may prevent an injured party from recovering damages if they
are partially at fault is:
a) Strict Liability
b) Vicarious Liability
c) Comparative Negligence ✓
d) Absolute Liability
9. What is the primary goal of tort law?
a) To punish criminals
b) To enforce contracts
c) To compensate injured parties for wrongful acts ✓
d) To regulate business conduct
10. Vicarious liability most commonly applies to the relationship between:
a) Manufacturer and consumer
b) Employer and employee ✓
c) Landlord and tenant
d) Borrower and lender
,Part 3: Property & Casualty Insurance
11. In a commercial property policy, what does the term "business income" (time
element) coverage protect against?
a) Physical damage to inventory
b) Loss of income due to a covered suspension of operations ✓
c) Employee theft
d) Liability for customer injuries
12. The cause of loss form that provides the broadest named perils coverage is:
a) Basic
b) Broad ✓
c) Special
d) Earthquake
13. Which commercial auto coverage form covers liability for injuries or damage caused by
the insured's vehicles?
a) Coverage Form A
b) Coverage Form B
c) Business Auto Coverage Form ✓
d) Garage Coverage Form
14. What is the purpose of an "other insurance" clause in a policy?
a) To define who is an insured
b) To establish how losses are paid when multiple policies cover the same risk ✓
c) To list excluded perils
d) To set policy limits
15. A standard Workers' Compensation policy covers:
a) Intentional injuries by the employer
b) Employee injuries arising out of and in the course of employment ✓
c) Injuries to independent contractors
d) Third-party liability for workplace accidents
Part 4: Insurance Operations & Accounting
16. The ratio that measures an insurer's underwriting profitability is:
a) Loss Ratio
b) Expense Ratio
, c) Combined Ratio ✓
d) Investment Yield Ratio
17. What does "ceded" refer to in reinsurance?
a) The reinsurer accepting risk from the primary insurer
b) The primary insurer transferring risk to the reinsurer ✓
c) The insured transferring risk to the insurer
d) The broker placing risk with an insurer
18. The primary purpose of an insurer's loss reserve is to:
a) Pay shareholder dividends
b) Cover future claims that have already occurred ✓
c) Pay agent commissions
d) Fund marketing campaigns
19. Which accounting method do property-casualty insurers primarily use?
a) Cash Basis
b) Generally Accepted Accounting Principles (GAAP)
c) Statutory Accounting Principles (SAP) ✓
d) Tax Basis
20. What is the main function of an underwriter?
a) To sell policies
b) To investigate claims
c) To select and classify risks ✓
d) To manage investments
Part 5: Financial Concepts & Markets
21. The measure of a company's ability to meet its short-term obligations is:
a) Leverage Ratio
b) Profit Margin
c) Liquidity Ratio ✓
d) Return on Equity (ROE)
22. A bond is best described as:
a) An ownership share in a company
b) A short-term money market instrument
