CFP (FP512) UPDATED ACTUAL
Questions and CORRECT Answers
Risk - CORRECT ANSWER the possibility of a loss, or a negative deviation from a
desired outcome
Peril - CORRECT ANSWER the cause of that loss
Hazard - CORRECT ANSWER increases the potential for a loss
Static Risks - CORRECT ANSWER result from factors other than changes in the
economy, Ex: earthquake or flodd
Dynamic Risks - CORRECT ANSWER result of the changes in the economy, such as
changes in the business cycle or inflation
Fundamental Risks - CORRECT ANSWER affect a large group of people, Ex: earthquake
and recession
Particular Risk - CORRECT ANSWER affect individuals or small group
Pure Risk - CORRECT ANSWER involves only the chance of loss or no loss, no chance
of gain
Speculative Risk - CORRECT ANSWER involves both the chance of loss and gain, ex:
gambling
Risk Management Process - CORRECT ANSWER 1. Identify and Establish Risk
Management Goals
2. Gather Pertinent Data to Determine Risk Exposures
,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 Recomendations for needed changes
Risk Control - CORRECT ANSWER seeks to minimize risk of loss
Risk Financing - CORRECT ANSWER pays the costs of losses incurred
Law of Large Numbers - CORRECT ANSWER must be a large number of potential losses
so that the insurer can reasonably apportion the expected financial loss
Insurable Interest - CORRECT ANSWER when the interested party will suffer a financial
loss if the insured loss occurs
Coinsurance - CORRECT ANSWER may be a splitting of costs, or a minimum percentage
of insurance that is required to avoid being penalized
Subrogation - CORRECT ANSWER right of an insurance company that has paid for a loss
to recover its payments if its determined that a different insurance company is responsible for the
loss from collecting twice for the same loss
Independent Agents - CORRECT ANSWER respresent several insurance companies doing
business under the American agency system
Captive Agents - CORRECT ANSWER represent only one company or group
Career Agents - CORRECT ANSWER usually life insurance agents in a general agency,
often maintain selling contracts with other companies to better serve clients
, Producing General Agents - CORRECT ANSWER produce the majority of their income
by selling insurance personally, do not have specified territories, have authority to hire agents to
work for them
Broker - CORRECT ANSWER individuals who are licensed with and represent many
insurers
Surplus and excess line Brokers - CORRECT ANSWER handle any type of insurance that
cannot be purchased using normal distribution channels within a given state
Express Authority - CORRECT ANSWER specifically bestowed on the agent
Implied Authority - CORRECT ANSWER not expressly granted but assumed to have in
order to transact
Apparent Authority - CORRECT ANSWER appearance of authority based on the actions,
words, or deeds of the agent/insurer
National Association of Insurance Commissioners (NAIC) - CORRECT
ANSWER composed of state commissioners from all 50 states, maintain the regulation of
the insurance industry, gives states recommendations
Aleatory Contract - CORRECT ANSWER where the outcome is controlled by chance, and
the dollars that change hands are often of substantially unequal amounts
Contract of Adhesion - CORRECT ANSWER one that is prepared by one party and either
accepted or rejected by the other, there's no negotiation
Indemnity - CORRECT ANSWER insureds are restored to the financial position there
were initially in (no gain)
Questions and CORRECT Answers
Risk - CORRECT ANSWER the possibility of a loss, or a negative deviation from a
desired outcome
Peril - CORRECT ANSWER the cause of that loss
Hazard - CORRECT ANSWER increases the potential for a loss
Static Risks - CORRECT ANSWER result from factors other than changes in the
economy, Ex: earthquake or flodd
Dynamic Risks - CORRECT ANSWER result of the changes in the economy, such as
changes in the business cycle or inflation
Fundamental Risks - CORRECT ANSWER affect a large group of people, Ex: earthquake
and recession
Particular Risk - CORRECT ANSWER affect individuals or small group
Pure Risk - CORRECT ANSWER involves only the chance of loss or no loss, no chance
of gain
Speculative Risk - CORRECT ANSWER involves both the chance of loss and gain, ex:
gambling
Risk Management Process - CORRECT ANSWER 1. Identify and Establish Risk
Management Goals
2. Gather Pertinent Data to Determine Risk Exposures
,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 Recomendations for needed changes
Risk Control - CORRECT ANSWER seeks to minimize risk of loss
Risk Financing - CORRECT ANSWER pays the costs of losses incurred
Law of Large Numbers - CORRECT ANSWER must be a large number of potential losses
so that the insurer can reasonably apportion the expected financial loss
Insurable Interest - CORRECT ANSWER when the interested party will suffer a financial
loss if the insured loss occurs
Coinsurance - CORRECT ANSWER may be a splitting of costs, or a minimum percentage
of insurance that is required to avoid being penalized
Subrogation - CORRECT ANSWER right of an insurance company that has paid for a loss
to recover its payments if its determined that a different insurance company is responsible for the
loss from collecting twice for the same loss
Independent Agents - CORRECT ANSWER respresent several insurance companies doing
business under the American agency system
Captive Agents - CORRECT ANSWER represent only one company or group
Career Agents - CORRECT ANSWER usually life insurance agents in a general agency,
often maintain selling contracts with other companies to better serve clients
, Producing General Agents - CORRECT ANSWER produce the majority of their income
by selling insurance personally, do not have specified territories, have authority to hire agents to
work for them
Broker - CORRECT ANSWER individuals who are licensed with and represent many
insurers
Surplus and excess line Brokers - CORRECT ANSWER handle any type of insurance that
cannot be purchased using normal distribution channels within a given state
Express Authority - CORRECT ANSWER specifically bestowed on the agent
Implied Authority - CORRECT ANSWER not expressly granted but assumed to have in
order to transact
Apparent Authority - CORRECT ANSWER appearance of authority based on the actions,
words, or deeds of the agent/insurer
National Association of Insurance Commissioners (NAIC) - CORRECT
ANSWER composed of state commissioners from all 50 states, maintain the regulation of
the insurance industry, gives states recommendations
Aleatory Contract - CORRECT ANSWER where the outcome is controlled by chance, and
the dollars that change hands are often of substantially unequal amounts
Contract of Adhesion - CORRECT ANSWER one that is prepared by one party and either
accepted or rejected by the other, there's no negotiation
Indemnity - CORRECT ANSWER insureds are restored to the financial position there
were initially in (no gain)
