CPCU 556 Test Questions with Answers

Personal financial planningThe development and implementation of coordinated plans for achieving of one's overall financial objectives. Personal budgetAn advance plan for anticipated expenditures and income; used as a guide to keep a person's or a family's expenditures under control and within available income levels. Cash flow statementAn accounting statement that presents the sources and amounts of cash inflows and outflows over a time period. Disability income exposureAn exposure presented by the loss of earned income due to the disability of the income earner. Direct lossA loss that causes a reduction in tangible property values. Indirect or consequential lossA revenue loss, an extra expense, or another consequential loss that results from a direct loss. Estate planAn arrangement for the devolution of one's wealth, constructed in whole or in part by persons with knowledge in areas such as wills, trusts, tax law, insurance investments, and accounting. Financial intermediarya financial institution, such as an investment company or a commercial bank that invests people's money and pays them a return on that money. Deflation hedgeA guaranteed kind of asset (and source of income) that will likely maintain its value during deflationary times. Personal risk managementThe consideration, by a person or by a family, of all alternative methods for dealing with personal exposure to risk. InsuranceThe transfer of risk from one party to another. Coverage is usually by contract, in which one party (the company) agrees to indemnify or reimburse another party (the insured) for any (covered) loss that occurs according to the contract terms. Large-loss principleThe "first principle" of insurance buying, which places primary emphasis on those risks that potentially could wipe out or substantially deplete a person's or a family's net worth.