Chartered Property Casualty Underwriter
(CPCU®) Practice Exam Questions And
Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download
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1. Which of the following is a primary purpose of insurance?
A. To guarantee profits for insurers
B. To transfer risk from an individual to an insurer
C. To eliminate all financial risk
D. To increase investment opportunities for policyholders
Rationale: Insurance primarily exists to transfer risk from the insured to the
insurer, allowing individuals or businesses to manage potential financial
losses.
,2. In risk management, which of the following is considered a pure risk?
A. Fluctuations in stock prices
B. Fire damage to property
C. Potential profit from a new product
D. Currency exchange gains
Rationale: Pure risk involves situations that can only result in a loss or no
loss, not a gain, such as fire, theft, or natural disasters.
3. Which of the following best defines the principle of indemnity?
A. Compensation is paid regardless of the loss amount
B. The insured should not profit from a loss
C. The insurer guarantees replacement value
D. Losses must be fully reimbursed plus interest
Rationale: The principle of indemnity ensures that the insured is restored to
their financial position prior to the loss, without profit.
4. Which type of insurance policy covers losses that occur over time rather
than at a single event?
A. Term life insurance
B. Occurrence-based liability policy
C. Fire insurance
D. Marine cargo insurance
,Rationale: Occurrence-based policies cover claims that happen during the
policy period, regardless of when the claim is reported.
5. Which of the following statements is true about moral hazard?
A. It relates to natural disasters
B. It applies only to catastrophic events
C. It arises when insureds intentionally increase risk
D. It refers to market fluctuations
Rationale: Moral hazard occurs when individuals change their behavior in a
way that increases the likelihood or severity of a loss due to being insured.
6. In property insurance, which of the following perils is typically covered
under a standard homeowners policy?
A. Flood
B. Earthquake
C. Fire
D. War
Rationale: Standard homeowners policies usually cover fire as a named peril,
whereas flood and earthquake typically require separate coverage.
7. Which principle requires that an insurance contract be in writing and
clearly specify the terms and conditions?
, A. Utmost good faith
B. Contribution
C. Legal formality
D. Subrogation
Rationale: Legal formality ensures that insurance contracts are enforceable
and clearly outline the rights and duties of the parties.
8. Which of the following best describes adverse selection?
A. Insurers avoiding risky clients
B. High-risk individuals being more likely to purchase insurance
C. Fraudulent claims
D. Market fluctuations affecting premiums
Rationale: Adverse selection occurs when individuals with higher-than-
average risk are more likely to seek insurance, potentially increasing losses
for insurers.
9. Which type of liability arises from negligence without intentional harm?
A. Strict liability
B. Tort liability
C. Contractual liability
D. Absolute liability
(CPCU®) Practice Exam Questions And
Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download
1. Which of the following is a primary purpose of insurance?
A. To guarantee profits for insurers
B. To transfer risk from an individual to an insurer
C. To eliminate all financial risk
D. To increase investment opportunities for policyholders
Rationale: Insurance primarily exists to transfer risk from the insured to the
insurer, allowing individuals or businesses to manage potential financial
losses.
,2. In risk management, which of the following is considered a pure risk?
A. Fluctuations in stock prices
B. Fire damage to property
C. Potential profit from a new product
D. Currency exchange gains
Rationale: Pure risk involves situations that can only result in a loss or no
loss, not a gain, such as fire, theft, or natural disasters.
3. Which of the following best defines the principle of indemnity?
A. Compensation is paid regardless of the loss amount
B. The insured should not profit from a loss
C. The insurer guarantees replacement value
D. Losses must be fully reimbursed plus interest
Rationale: The principle of indemnity ensures that the insured is restored to
their financial position prior to the loss, without profit.
4. Which type of insurance policy covers losses that occur over time rather
than at a single event?
A. Term life insurance
B. Occurrence-based liability policy
C. Fire insurance
D. Marine cargo insurance
,Rationale: Occurrence-based policies cover claims that happen during the
policy period, regardless of when the claim is reported.
5. Which of the following statements is true about moral hazard?
A. It relates to natural disasters
B. It applies only to catastrophic events
C. It arises when insureds intentionally increase risk
D. It refers to market fluctuations
Rationale: Moral hazard occurs when individuals change their behavior in a
way that increases the likelihood or severity of a loss due to being insured.
6. In property insurance, which of the following perils is typically covered
under a standard homeowners policy?
A. Flood
B. Earthquake
C. Fire
D. War
Rationale: Standard homeowners policies usually cover fire as a named peril,
whereas flood and earthquake typically require separate coverage.
7. Which principle requires that an insurance contract be in writing and
clearly specify the terms and conditions?
, A. Utmost good faith
B. Contribution
C. Legal formality
D. Subrogation
Rationale: Legal formality ensures that insurance contracts are enforceable
and clearly outline the rights and duties of the parties.
8. Which of the following best describes adverse selection?
A. Insurers avoiding risky clients
B. High-risk individuals being more likely to purchase insurance
C. Fraudulent claims
D. Market fluctuations affecting premiums
Rationale: Adverse selection occurs when individuals with higher-than-
average risk are more likely to seek insurance, potentially increasing losses
for insurers.
9. Which type of liability arises from negligence without intentional harm?
A. Strict liability
B. Tort liability
C. Contractual liability
D. Absolute liability
