CFP FP 512 Exam Review Verified Exam Questions and Answers Latest update 2026/2027

CFP FP 512 Exam Review
Verified Exam Questions and Answers Latest update 2026/2027

Question:
1. Abandonment
Answer:
Represents the possibility of a loss-or a negative deviation from a desired
outcome.

Question:
2. Peril
Answer:
is the cause of a loss

Question:
3. Hazard
Answer:
Increases the potential for loss
Such as earthquakes and floods, result from factors other than changes in the

Question:
4. Static Risks
Answer:
economy. They tend to occur with regularity and can be insured.

Question:
5. Dynamic Risks
Answer:
Are the result of changes in the economy, such as changes in the business cycle

Question:
6. Fundamental Risks attect a large group of people. Examples include recessions and
earthquakes.
Answer:
or inflation. Insurance does not typically cover these types of risks.

Question:
7. Particular Risks

,Answer:
attect individuals or small groups of people
Involves only the chance of loss or no loss; in other words, there is no chance
of gain. The possibility that a person's home will burn represents this type of

Question:
8. Pure risk
Answer:
risk because there is no chance of gain but only the chance of loss or no loss.

Question:
9. Speculative Risk
Answer:
Involves both the chance of loss and the chance of gain. Gambling is a classic
example of this risk because it presents both the chance of loss and the chance
of gain.

Question:
10. Risk Management
Process
Answer:
Step 1: Identify and Establish Risk Management Goals
Step 2: Gather pertinent data to determine risk exposures
Step 3: Analyze and evaluate the information to identify risk exposures
Step 4: Develop a risk management plan
Step 5: Communicate the Recommendations
Step 6: Implement the recommendations
Step 7: Monitor the recommendations for needed changes

Question:
11.
Answer:
loss of the asset itself, loss of use of the asset, and other associated losses.

Question:
Asset related risk
exposure
Answer:

,Question:
12. Contract Law
asset resulting in liability to a lender, a club membership contract putting
certain responsibilities on the client, etc.
Answer:
the risk of liability in acquisition of an asset based on law: acquisition of an

Question:
13. Tort Law
boating accident, practicing one's profession, etc.
Answer:
Liability for a loss resulting from the use of an asset or from an activity-a

Question:
14. Risk Control
Answer:
Is a risk management technique that seeks to minimize the risk of loss.

Question:
15. Risk Avoidance
it can avoid the risk by not having windows... What kind of risk method does
this describe?
Answer:
If a business wants to ensure that it will not have windows broken by vandals,

Question:
16. Risk Reduction
may choose to have windows made of a material that is very diflcult to break...
What kind of risk method does this describe?
Answer:
If the same business wants windows but is still concerned about vandals, it

Question:
17. Risk Financing
Answer:
is a risk management technique that pays the costs of losses incurred

Question:
18. Risk Retention
individual believes any losses that occur can be covered out of pocket.

, Answer:
There are situations where the potential loss is small and the business or

Question:
19. Risk Transfer
or subcontracting. This describes giving risk to an insurance company in
exchange for a relatively small cost, the premium. Health, life, disability, and
liability risks are examples
Answer:
This is primarily insurance, but can also be accomplished through waivers

Question:
20. Risk Retention
loss, instead of transferring the risk by purchasing an insurance policy.
Answer:
A strategy in which an entity sets aside a sum as a protection against a probable

Question:
21. Self Insurance
Answer:


Question:
A form of risk management whereby a part of the firm's earnings is earmarked
as a contingency fund for possible future losses, specifically for individual loss
categories such as property, medical, or worker's compensation.
Answer:


Question:
22. Insurable risk
of the loss can be predicted
Answer:
a pure risk that is faced by a large number of people and for which the amount

Question:
23. Law of large num-
bers
can reasonably apportion the expected financial loss.