CFP 512 UPDATED ACTUAL Questions
and CORRECT Answers
Difference between risk, peril and hazard - CORRECT ANSWER A risk represente the
possibly of a loss or a negative deviation from a desires outcome. A peril is the cause of that loss,
while a hazard increases the potential for loss.
Static Risk - CORRECT ANSWER Results from factors other than changes in the
economy (earthquake, floods, etc). They tend to occur with regularity and can be insured.
Dynamic risks - CORRECT ANSWER They are the result of changes in the economy
(business cycle, inflation, etc). Insurance does not typically cover dynamic risks.
Fundamental Risk - CORRECT ANSWER risk that can affect many people at once
(earthquake, terrorism)
Particular Risk - CORRECT ANSWER risks that effect individuals / a small group of
people at a given time.
Pure Risk - CORRECT ANSWER A chance of loss or no loss, but no chance of gain.
Speculative Risk - CORRECT ANSWER Chance of loss or gain
Risk Control - CORRECT ANSWER techniques that reduce the frequency or severity of
losses
Risk Avoidance - CORRECT ANSWER A type of risk control where risk is avoided. If
you do not want a window broken, don't have windows.
,Risk Reduction - CORRECT ANSWER finding ways to lower your chance of incurring a
loss
Risk Financing - CORRECT ANSWER A risk management technique that provides for
payment of losses after they occur
Risk Rentention - CORRECT ANSWER Small risk that are planed to be covered by out of
pocket.
Risk Transfer - CORRECT ANSWER Primarily by insurance, but can be accomplished
through waivers and subcontracting.
The two critical assumptions actuaries use to evaluate anticipated losses - CORRECT
ANSWER The Elements of an Insurable Risk have been met and Adverse Selection can be
controlled.
Define Fortuitous. For a risk to be insurable, losses must be Fortuitous. - CORRECT
ANSWER Fortuitous means (accidental). If it was not accidental, then it was planned
which is almost always involves a criminal act.
Subrogation - CORRECT ANSWER The process by which an insurer can, after it has paid
a loss under the policy, recover the amount paid from any party (other than the insured) who
caused the loss or is otherwise legally liable for the loss.
social insurance - CORRECT ANSWER Administered by the government, with benefits
mandates by law
public insurance - CORRECT ANSWER Designed to enhance public trust in financial
institutions. Usually mandatory and administered by the government or by quasi governmental
institutions. (Ie, FDIC, SIPC)
, Age for asset accumulation phase - CORRECT ANSWER Until approx age 45. Debt is
usually high and cash flow and net worth is generally low.
Age for Conservation or Protection phase - CORRECT ANSWER Approx age 45 to 60 (or
immediately preceding clients planned retirement date.). Cash flow and Net Worth are
increasing, and debt is decreasing. Start looking at long term care insurance.
Age for distribution or gifting phase - CORRECT ANSWER Age 60, (or planned
retirement date) until the date of death.
Captive Agents - CORRECT ANSWER Work for only one insurer
Career agents - CORRECT ANSWER Usually life insurance agents and I'm some cases
are also captive agents. But many maintain selling contracts with other companies to better serve
clients.
Producing General Agents (PGAs) - CORRECT ANSWER generally produce the majority
of their income by selling insurance personally, do not have specified territories, and have
authority to hire agents to work for them if they wish
Brokers - CORRECT ANSWER Individuals who are licensed with and represent many
insurers.
Surplus and excess line brokers and agents - CORRECT ANSWER They are able to go
outside of normal channels within a given state and seek services beyond a state line.
In the law of agency (agent), the agents authority to legally bind the principle stems from three
sources: - CORRECT ANSWER Express Authority; Implied Authority; Apparent
Authority
Express Authority - CORRECT ANSWER the authority of an agent, stated in the
document or agreement creating the agency. Specifically conferred on the agent
and CORRECT Answers
Difference between risk, peril and hazard - CORRECT ANSWER A risk represente the
possibly of a loss or a negative deviation from a desires outcome. A peril is the cause of that loss,
while a hazard increases the potential for loss.
Static Risk - CORRECT ANSWER Results from factors other than changes in the
economy (earthquake, floods, etc). They tend to occur with regularity and can be insured.
Dynamic risks - CORRECT ANSWER They are the result of changes in the economy
(business cycle, inflation, etc). Insurance does not typically cover dynamic risks.
Fundamental Risk - CORRECT ANSWER risk that can affect many people at once
(earthquake, terrorism)
Particular Risk - CORRECT ANSWER risks that effect individuals / a small group of
people at a given time.
Pure Risk - CORRECT ANSWER A chance of loss or no loss, but no chance of gain.
Speculative Risk - CORRECT ANSWER Chance of loss or gain
Risk Control - CORRECT ANSWER techniques that reduce the frequency or severity of
losses
Risk Avoidance - CORRECT ANSWER A type of risk control where risk is avoided. If
you do not want a window broken, don't have windows.
,Risk Reduction - CORRECT ANSWER finding ways to lower your chance of incurring a
loss
Risk Financing - CORRECT ANSWER A risk management technique that provides for
payment of losses after they occur
Risk Rentention - CORRECT ANSWER Small risk that are planed to be covered by out of
pocket.
Risk Transfer - CORRECT ANSWER Primarily by insurance, but can be accomplished
through waivers and subcontracting.
The two critical assumptions actuaries use to evaluate anticipated losses - CORRECT
ANSWER The Elements of an Insurable Risk have been met and Adverse Selection can be
controlled.
Define Fortuitous. For a risk to be insurable, losses must be Fortuitous. - CORRECT
ANSWER Fortuitous means (accidental). If it was not accidental, then it was planned
which is almost always involves a criminal act.
Subrogation - CORRECT ANSWER The process by which an insurer can, after it has paid
a loss under the policy, recover the amount paid from any party (other than the insured) who
caused the loss or is otherwise legally liable for the loss.
social insurance - CORRECT ANSWER Administered by the government, with benefits
mandates by law
public insurance - CORRECT ANSWER Designed to enhance public trust in financial
institutions. Usually mandatory and administered by the government or by quasi governmental
institutions. (Ie, FDIC, SIPC)
, Age for asset accumulation phase - CORRECT ANSWER Until approx age 45. Debt is
usually high and cash flow and net worth is generally low.
Age for Conservation or Protection phase - CORRECT ANSWER Approx age 45 to 60 (or
immediately preceding clients planned retirement date.). Cash flow and Net Worth are
increasing, and debt is decreasing. Start looking at long term care insurance.
Age for distribution or gifting phase - CORRECT ANSWER Age 60, (or planned
retirement date) until the date of death.
Captive Agents - CORRECT ANSWER Work for only one insurer
Career agents - CORRECT ANSWER Usually life insurance agents and I'm some cases
are also captive agents. But many maintain selling contracts with other companies to better serve
clients.
Producing General Agents (PGAs) - CORRECT ANSWER generally produce the majority
of their income by selling insurance personally, do not have specified territories, and have
authority to hire agents to work for them if they wish
Brokers - CORRECT ANSWER Individuals who are licensed with and represent many
insurers.
Surplus and excess line brokers and agents - CORRECT ANSWER They are able to go
outside of normal channels within a given state and seek services beyond a state line.
In the law of agency (agent), the agents authority to legally bind the principle stems from three
sources: - CORRECT ANSWER Express Authority; Implied Authority; Apparent
Authority
Express Authority - CORRECT ANSWER the authority of an agent, stated in the
document or agreement creating the agency. Specifically conferred on the agent
