CFP FP512 Key Terms UPDATED
ACTUAL Questions and CORRECT
Answers
Abandonment - CORRECT ANSWER Represents the possibility of a loss—or a negative
deviation from a desired outcome.
Absolute Liability (Strict Liability) - CORRECT ANSWER The standard imposed when a
person or organization is held responsible for any damages, even when there has been no
negligence (e.g. keeping wild animals)
Actual Cash Value - CORRECT ANSWER replacement cost minus depreciation
Adjuster - CORRECT ANSWER A representative of an insurance company who
investigates and acts on the behalf of the company to obtain agreements for the amount of the
insurance claim.
Adverse Selection - CORRECT ANSWER A high-risk person benefits more from
insurance, so is more likely to purchase it.
Aleatory Contract - CORRECT ANSWER a contract where the values exchanged may not
be equal but depend on chance (insurance)
Attractive Nuissance - CORRECT ANSWER a hazardous condition that can attract and
injure children (e.g. a swimming pool)
Express Authority - CORRECT ANSWER The authority granted to an agent by means of
the agent's written contract.
,Implied Authority - CORRECT ANSWER Authority that is not expressed or written into
the contract, but which the agent is assumed to have in order to transact the business of insurance
for the principal
Apparent Authority - CORRECT ANSWER The authority an agent is believed by third
parties to have because of the behavior of the principal
Bilateral - CORRECT ANSWER When either party to the contract can enforce the
contract in a court of law, the contract is
Broker - CORRECT ANSWER Cannot bind the insurer and has none of an agent's
authority.
Captive Agents - CORRECT ANSWER an insurance agent who represents only one
insurance company and who is, in effect, an employee of that company
Career Agents - CORRECT ANSWER Are usually life insurance agents in a general
agency or acompany-owned office under the agency management or the branch office systems.
In some cases, these agents are also captive agents, but in many situations these agents maintain
selling contracts with other companies to better serve their clients. These agents often choose this
form of operation because of the support provided by the agency and the company.
Coinsurance - CORRECT ANSWER may be a splitting of costs, or it may refer to a
minimum percentage of insurance that is required to avoid being penalized for inadequate
property insurance when there are partial losses.
Collateral Source Rule - CORRECT ANSWER This rule states that if others cause you to
suffer a loss, they are obligated to pay you for your loss, and they do not have their liability
reduced just because you had insurance to cover such a loss
Comparative Negligence - CORRECT ANSWER damages are adjusted to reflect the
extent to which the injured party's own negligence contributed to his injuries. For example, if a
, jury determines that the injured party was 20% to blame for the injury, the plaintiff's award might
be reduced by 20%.
Concealment - CORRECT ANSWER the intentional withholding of material information,
violates the requirement of utmost good faith even if no specific question arises about that
information.
Conditional Insurance - CORRECT ANSWER pays on the condition that a covered loss
occurs.
Consideration - CORRECT ANSWER is the act or the payment for the act. Each party
must give the other something of value. The insured pays an initial premium, and the insurer
binds coverage.
Contract - CORRECT ANSWER a binding agreement between two or more persons that is
enforceable by law
Contract Law - CORRECT ANSWER Law that refers to agreements between individuals
and entities that are binding
Contract Disputes - CORRECT ANSWER
Contract of Adhesion - CORRECT ANSWER is one that is prepared by one party and
either accepted or rejected by the other. There is no negotiation in the process.
Contributory Negligence - CORRECT ANSWER If any negligence on the part of the
injured party contributes to the injury, it absolves the other party of liability. a person cannot
recover damages if his own negligence contributed in any way to his injuries.
Deductible - CORRECT ANSWER is a retained risk. It is the portion of insured losses that
the insured is expected to pay before the insurance company pays anything.
ACTUAL Questions and CORRECT
Answers
Abandonment - CORRECT ANSWER Represents the possibility of a loss—or a negative
deviation from a desired outcome.
Absolute Liability (Strict Liability) - CORRECT ANSWER The standard imposed when a
person or organization is held responsible for any damages, even when there has been no
negligence (e.g. keeping wild animals)
Actual Cash Value - CORRECT ANSWER replacement cost minus depreciation
Adjuster - CORRECT ANSWER A representative of an insurance company who
investigates and acts on the behalf of the company to obtain agreements for the amount of the
insurance claim.
Adverse Selection - CORRECT ANSWER A high-risk person benefits more from
insurance, so is more likely to purchase it.
Aleatory Contract - CORRECT ANSWER a contract where the values exchanged may not
be equal but depend on chance (insurance)
Attractive Nuissance - CORRECT ANSWER a hazardous condition that can attract and
injure children (e.g. a swimming pool)
Express Authority - CORRECT ANSWER The authority granted to an agent by means of
the agent's written contract.
,Implied Authority - CORRECT ANSWER Authority that is not expressed or written into
the contract, but which the agent is assumed to have in order to transact the business of insurance
for the principal
Apparent Authority - CORRECT ANSWER The authority an agent is believed by third
parties to have because of the behavior of the principal
Bilateral - CORRECT ANSWER When either party to the contract can enforce the
contract in a court of law, the contract is
Broker - CORRECT ANSWER Cannot bind the insurer and has none of an agent's
authority.
Captive Agents - CORRECT ANSWER an insurance agent who represents only one
insurance company and who is, in effect, an employee of that company
Career Agents - CORRECT ANSWER Are usually life insurance agents in a general
agency or acompany-owned office under the agency management or the branch office systems.
In some cases, these agents are also captive agents, but in many situations these agents maintain
selling contracts with other companies to better serve their clients. These agents often choose this
form of operation because of the support provided by the agency and the company.
Coinsurance - CORRECT ANSWER may be a splitting of costs, or it may refer to a
minimum percentage of insurance that is required to avoid being penalized for inadequate
property insurance when there are partial losses.
Collateral Source Rule - CORRECT ANSWER This rule states that if others cause you to
suffer a loss, they are obligated to pay you for your loss, and they do not have their liability
reduced just because you had insurance to cover such a loss
Comparative Negligence - CORRECT ANSWER damages are adjusted to reflect the
extent to which the injured party's own negligence contributed to his injuries. For example, if a
, jury determines that the injured party was 20% to blame for the injury, the plaintiff's award might
be reduced by 20%.
Concealment - CORRECT ANSWER the intentional withholding of material information,
violates the requirement of utmost good faith even if no specific question arises about that
information.
Conditional Insurance - CORRECT ANSWER pays on the condition that a covered loss
occurs.
Consideration - CORRECT ANSWER is the act or the payment for the act. Each party
must give the other something of value. The insured pays an initial premium, and the insurer
binds coverage.
Contract - CORRECT ANSWER a binding agreement between two or more persons that is
enforceable by law
Contract Law - CORRECT ANSWER Law that refers to agreements between individuals
and entities that are binding
Contract Disputes - CORRECT ANSWER
Contract of Adhesion - CORRECT ANSWER is one that is prepared by one party and
either accepted or rejected by the other. There is no negotiation in the process.
Contributory Negligence - CORRECT ANSWER If any negligence on the part of the
injured party contributes to the injury, it absolves the other party of liability. a person cannot
recover damages if his own negligence contributed in any way to his injuries.
Deductible - CORRECT ANSWER is a retained risk. It is the portion of insured losses that
the insured is expected to pay before the insurance company pays anything.
