FP512 Risk Management, Insurance, and Employee Benefits Planning Exam Verified Exam Questions and Answers Latest update 2026/2027

FP512 Risk Management, Insurance, and Employee Benefits
Planning Exam
Verified Exam Questions and Answers Latest update 2026/2027

Question:
Risk -
Answer:
Possibility of a loss, or a negative deviation from a desired
outcome (house burning down)

Question:
Peril -
Answer:
Cause of the loss (fire)

Question:
Hazard -
Answer:
Increases the potential for loss (candles burning near
curtains)

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

- earthquakes, floods

- can be insured

Question:
Dynamic Risk -
Answer:
Result from changes in the economy

- changes in the business cycle, inflation

- can not be insured

,Question:
Fundamental Risks -
Answer:
Affects a large group of people

- Recessions, earthquakes

Question:
Particular Risks -
Answer:
Affects individuals or small groups of people

Question:
Pure Risk -
Answer:
No chance of gain, only chance of loss or no loss

- Insurable
- Possibility that your house will burn down -> no chance of gain, only chance of loss or no loss

Question:
Speculative Risk -
Answer:
Chance of loss and chance of gain

- Not insurable

- Gambling -> can win or lose money

Question:
The Risk Management Process -

,Answer:
1. Identify and establish risk
management goals

2. Gather pertinent data to determine risk exposures (property, personal illness & injury, liability)

3. Analyze and evaluate the information to identify risk exposures

4. Develop a risk management plan

5. Communicate the recommendations

6. Implement the recommendations

7. Monitor the recommendations for needed changes

Question:
Risk Control -
Answer:
Seeks to minimize the risk of loss

- Risk Avoidance

- Risk Reduction

Question:
Risk Avoidance -
Answer:
Avoiding an act that would create a risk

- an individual who does not want to get hurt playing a particular sport can avoid playing that
sport

- high severity/high frequency --> AVOID RISK

Question:
Risk Reduction -

, Answer:
Ways to lower your chance of incurring a loss

- if you want to play the sport but want to limit the potential damage -> wear protective gear

- low severity/high frequency --> REDUCE RISK

Question:
Risk Financing -
Answer:
Pays the cost of losses incurred

- Risk Retention

- Risk Transfer

Question:
Risk Retention -
Answer:
You retain the risk and pay for the cost of losses

- When the potential loss is small, you think you can pay for the losses out of pocket

- low severity/low frequency --> RETAIN RISK

Question:
Risk Transfer -
Answer:
Shifting risk to another party

- transfer the risk to insurance company in exchange for cost (premium)

- high severity/low frequency --> TRANSFER RISK

Question:
Underwriting Process -