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CFP INSURANCE MODULE 2: PROPERTY
AND CASUALTY INSURANCE QUESTIONS
WITH DETAILED VERIFIED ANSWERS
Which of the following statements regarding the replacement cost
coverage of the standard homeowners form is CORRECT?
The standard homeowners form will provide replacement cost coverage
for a partial loss up to the policy limit, minus any deductible if the home
is insured for at least 80% of the purchase price.
The standard homeowners form will cover the cost of required repairs for
a partial loss up to the policy limit, minus any deductible without any
deduction for depreciation if the home is insured for at least 80% of the
replacement cost of the dwelling.
Financial planners should recommend at least 100% of the replacement
cost value of the home with regard to homeowners insurance coverage
recommendations. Ans: The answer is II and III. The replacement cost
coverage provision will cover the cost of required repairs up to the policy
limit, minus any deductible without any deduction for depreciation if the
insured has covered the building for at least 80% of the replacement cost
(not the purchase price of the home). Financial planners should always
recommend at least 100% of the replacement value of the home with
regard to homeowners insurance
Which of the following are types of automobile insurance coverage under
a personal auto policy (PAP)?
Uninsured motorists
Liability insurance
Medical payments
Property damage Ans: The answer is I, II, III, and IV. All of these are
types of insurance coverage under a PAP.
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A personal liability umbrella policy (PLUP)
is written only for persons with substantial underlying liability insurance.
provides additional coverage to the underlying policies.
has a drop down limitation that will apply in most cases. Ans: The
answer is I, II, and III. All of these statements correctly describe a
characteristic of the PLUP.
James is a delivery driver for ABC Pizza. He gets into an accident and is
ticketed for speeding while delivering one of ABC Pizza's delivery orders.
The victim's attorney plans on going after ABC Pizza for special and
punitive damages. Which of the following terms best describe why ABC
Pizza being held liable for this accident? Ans: The answer is vicarious
liability. Vicarious liability results from when a person is liable for torts
committed by someone else. For example, parents may be liable for the
torts committed by their children, and employers can be liable for the
torts committed by their employees. The principle of strict liability holds
tortfeasors—parties who commit a tort—liable for damages sustained by
their actions or from their products, whether or not they were deemed at
fault. Under the contributory negligence rule, a person cannot recover
damages if his own negligence contributed in any way to his injuries.
Under comparative negligence, damages are adjusted to reflect the
extent to which the injured party's own negligence contributed to his
injuries.
Which of the following statements regarding personal auto policy (PAP)
Part B Medical Payments coverage is CORRECT?
Part B of the PAP provides payment for the reasonable and necessary
medical expenses of an insured as a result of an automobile accident.
The insureds under Part B include the named insured, spouse, and any
family members while they are occupying a motor vehicle, or when, as a
pedestrian, they are struck by a vehicle. Ans: The answer is both I and
II. Part B: Medical Payments coverage provides payment for the
reasonable and necessary medical expenses of the insured as a result of
an automobile accident. Expenses must be incurred within three years of
the incident, and limits are provided on a per-person, per-occurrence
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basis. Individuals covered by Part B include the named insured, spouse,
and any family member while they are occupying a motor vehicle, or
when, as a pedestrian, they are struck by a vehicle.
A homeowners insurance policy can be endorsed with an HO-15 to Ans:
The answer is provide open-peril coverage for personal property owned,
used, or worn by the insured. The HO-15 provides open-peril coverage
for personal property owned, used, or worn by the insured.
Which of the following is a common property coverage that can be
included in a businessowners policy (BOP)? Ans: The answer is auto.
Auto coverage is a property coverage that can be added to a BOP, while
the other answer choices provide liability coverage.
Which of the following statements regarding malpractice and errors and
omissions (E&O) insurance is CORRECT?
Malpractice insurance is generally used where the deficient conduct of the
insured may result in bodily harm (e.g., a physician, surgeon, or dentist).
E&O insurance is coverage that provides protection against deficient acts
of a professional who handles money.
Malpractice insurance allows the insurance company to settle claims out
of court on behalf of the professional.
Most financial services professionals, including financial planners, will
have E&O insurance at either the individual or group level. Ans: The
answer is I, II, III, and IV. All of these statements are correct.
How much homeowners insurance coverage should financial planners
encourage their clients to maintain? Ans: The answer is 100% of the
replacement value of the home. Unless a financial planner is a licensed
property and casualty agent, the planner cannot discuss a client's
coverages. However, the planner can and should encourage clients to
maintain at least 100% of the replacement value of the home. Many
insurance companies offer additional riders to increase that amount, and
the client can discuss that with an insurance agent.
CFP INSURANCE MODULE 2: PROPERTY
AND CASUALTY INSURANCE QUESTIONS
WITH DETAILED VERIFIED ANSWERS
Which of the following statements regarding the replacement cost
coverage of the standard homeowners form is CORRECT?
The standard homeowners form will provide replacement cost coverage
for a partial loss up to the policy limit, minus any deductible if the home
is insured for at least 80% of the purchase price.
The standard homeowners form will cover the cost of required repairs for
a partial loss up to the policy limit, minus any deductible without any
deduction for depreciation if the home is insured for at least 80% of the
replacement cost of the dwelling.
Financial planners should recommend at least 100% of the replacement
cost value of the home with regard to homeowners insurance coverage
recommendations. Ans: The answer is II and III. The replacement cost
coverage provision will cover the cost of required repairs up to the policy
limit, minus any deductible without any deduction for depreciation if the
insured has covered the building for at least 80% of the replacement cost
(not the purchase price of the home). Financial planners should always
recommend at least 100% of the replacement value of the home with
regard to homeowners insurance
Which of the following are types of automobile insurance coverage under
a personal auto policy (PAP)?
Uninsured motorists
Liability insurance
Medical payments
Property damage Ans: The answer is I, II, III, and IV. All of these are
types of insurance coverage under a PAP.
, Page | 2
A personal liability umbrella policy (PLUP)
is written only for persons with substantial underlying liability insurance.
provides additional coverage to the underlying policies.
has a drop down limitation that will apply in most cases. Ans: The
answer is I, II, and III. All of these statements correctly describe a
characteristic of the PLUP.
James is a delivery driver for ABC Pizza. He gets into an accident and is
ticketed for speeding while delivering one of ABC Pizza's delivery orders.
The victim's attorney plans on going after ABC Pizza for special and
punitive damages. Which of the following terms best describe why ABC
Pizza being held liable for this accident? Ans: The answer is vicarious
liability. Vicarious liability results from when a person is liable for torts
committed by someone else. For example, parents may be liable for the
torts committed by their children, and employers can be liable for the
torts committed by their employees. The principle of strict liability holds
tortfeasors—parties who commit a tort—liable for damages sustained by
their actions or from their products, whether or not they were deemed at
fault. Under the contributory negligence rule, a person cannot recover
damages if his own negligence contributed in any way to his injuries.
Under comparative negligence, damages are adjusted to reflect the
extent to which the injured party's own negligence contributed to his
injuries.
Which of the following statements regarding personal auto policy (PAP)
Part B Medical Payments coverage is CORRECT?
Part B of the PAP provides payment for the reasonable and necessary
medical expenses of an insured as a result of an automobile accident.
The insureds under Part B include the named insured, spouse, and any
family members while they are occupying a motor vehicle, or when, as a
pedestrian, they are struck by a vehicle. Ans: The answer is both I and
II. Part B: Medical Payments coverage provides payment for the
reasonable and necessary medical expenses of the insured as a result of
an automobile accident. Expenses must be incurred within three years of
the incident, and limits are provided on a per-person, per-occurrence
, Page | 3
basis. Individuals covered by Part B include the named insured, spouse,
and any family member while they are occupying a motor vehicle, or
when, as a pedestrian, they are struck by a vehicle.
A homeowners insurance policy can be endorsed with an HO-15 to Ans:
The answer is provide open-peril coverage for personal property owned,
used, or worn by the insured. The HO-15 provides open-peril coverage
for personal property owned, used, or worn by the insured.
Which of the following is a common property coverage that can be
included in a businessowners policy (BOP)? Ans: The answer is auto.
Auto coverage is a property coverage that can be added to a BOP, while
the other answer choices provide liability coverage.
Which of the following statements regarding malpractice and errors and
omissions (E&O) insurance is CORRECT?
Malpractice insurance is generally used where the deficient conduct of the
insured may result in bodily harm (e.g., a physician, surgeon, or dentist).
E&O insurance is coverage that provides protection against deficient acts
of a professional who handles money.
Malpractice insurance allows the insurance company to settle claims out
of court on behalf of the professional.
Most financial services professionals, including financial planners, will
have E&O insurance at either the individual or group level. Ans: The
answer is I, II, III, and IV. All of these statements are correct.
How much homeowners insurance coverage should financial planners
encourage their clients to maintain? Ans: The answer is 100% of the
replacement value of the home. Unless a financial planner is a licensed
property and casualty agent, the planner cannot discuss a client's
coverages. However, the planner can and should encourage clients to
maintain at least 100% of the replacement value of the home. Many
insurance companies offer additional riders to increase that amount, and
the client can discuss that with an insurance agent.
