CFP FP512 Risk Management and insurance Exam Verified Exam Questions and Answers Latest update 2026/2027

CFP FP512 Risk Management and insurance Exam
Verified Exam Questions and Answers Latest update 2026/2027

Question:
Risk -
Answer:
The possibility of a loss

Question:
Peril -
Answer:
The cause of a loss

Question:
Hazard -
Answer:
Increases the potential for a loss

Question:
Static Risk -
Answer:
Result from factors other than changes in the economy
- Earthquake, Flood

Question:
Dynamic Risk -
Answer:
Result of changes in the economy, such as changes
in the business cycle or inflation. Insurance does not typically cover dynamic risks

Question:
Fundamental Risk -
Answer:
Risk that can affect many people at once
(earthquake, Recession)

Question:
Particular Risk -

,Answer:
Risk that affects Individuals or small groups of
people

Question:
Pure Risk -
Answer:
A risk that presents the chance of loss but no
opportunity for gain - Home burning down

Question:
Speculative Risk -
Answer:
A risk that presents the chance of a gain or a loss
- gambling, investing - not insurable

Question:
What is the average amount of income spent on risk protection? -
Answer:
At least 10%

Question:
Asset related risk exposure -
Answer:
Loss of the asset itself, loss of use of
the asset, and other associated losses - home after flood or fire, car after accident or damage

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

Question:
Risk of liability based on tort law -
Answer:
Liability for a loss resulting
from the use of an asset or from an activity-a boating accident, practicing one's profession, etc.

,Question:
Risk Control -
Answer:
Seeks to minimize the risk of a loss: Avoidance and
reduction

Question:
Risk Financing -
Answer:
Risk management technique that pays the costs of
losses incurred: Retention and transfer

Question:
Avoidance -
Answer:
Not doing an activity that has a risk of loss - deciding
not to drive in the snow, not playing a sport to avoid injury

Question:
Reduction -
Answer:
Doing an activity that has a risk of loss but taking
precautions to reduce the risk - Going skiing but wearing a helmet and staying in easier trails,
driving in the snow but getting new tires and brakes first

Question:
Retention -
Answer:
The potential loss is small and the business or
individual believes any losses that occur can be covered out of pocket. It is also possible that the
cost of transferring the risk is high, so there may be no reasonable alternative

Question:
Transfer -
Answer:
This is primarily insurance, but can also be accomplished
through waivers or subcontracting. With insurance, the risk of loss is transferred to an insurance
company in exchange for a relatively small cost, the premium. Health, life, disability, and

, Question:
Risk management matrix -
Answer:
liability risks are examples that are generally transferred.

Question:
Self-insurance -
Answer:
Self-insurance is a method of risk retention by
large companies that has several requirements:

-The organization should have enough homogeneous exposure units to make losses somewhat
predictable.

-Adequate funds must be accumulated to cover plan losses.

-The self-insurer must be able to administer the insurance functions, such as analysis of potential
claims, disbursement of payments to providers, and objective determination of claim validity, as
efficiently as an insurance company would.

-The self-insurer must be able to competently manage investment of the self-insurance fund.

Question:
Underwriting -
Answer:
Process of gathering as much information on the
risk exposure as possible in order to:

-determine if the exposure meets the requirements of an insurable risk

-decide whether it is practical for the insurer to provide insurance against this particular risk

-establish how the insurance should be priced.

Question:
Elements of an Insurable Risk -