Page | 1
CFP (FP512) QUESTIONS WITH DETAILED
VERIFIED ANSWERS
Risk Ans: the possibility of a loss, or a negative deviation from a
desired outcome
Peril Ans: the cause of that loss
Hazard Ans: increases the potential for a loss
Static Risks Ans: result from factors other than changes in the economy,
Ex: earthquake or flodd
Dynamic Risks Ans: result of the changes in the economy, such as
changes in the business cycle or inflation
Fundamental Risks Ans: affect a large group of people, Ex: earthquake
and recession
Particular Risk Ans: affect individuals or small group
Pure Risk Ans: involves only the chance of loss or no loss, no chance of
gain
Speculative Risk Ans: involves both the chance of loss and gain, ex:
gambling
Risk Management Process Ans: 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
, Page | 2
6. Implement the Recommendations
7. Monitor the Recomendations for needed changes
Risk Control Ans: seeks to minimize risk of loss
Risk Financing Ans: pays the costs of losses incurred
Law of Large Numbers Ans: must be a large number of potential losses
so that the insurer can reasonably apportion the expected financial loss
Insurable Interest Ans: when the interested party will suffer a financial
loss if the insured loss occurs
Coinsurance Ans: may be a splitting of costs, or a minimum percentage
of insurance that is required to avoid being penalized
Subrogation Ans: 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 Ans: respresent several insurance companies doing
business under the American agency system
Captive Agents Ans: represent only one company or group
Career Agents Ans: usually life insurance agents in a general agency,
often maintain selling contracts with other companies to better serve
clients
Producing General Agents Ans: 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 Ans: individuals who are licensed with and represent many
insurers
, Page | 3
Surplus and excess line Brokers Ans: handle any type of insurance that
cannot be purchased using normal distribution channels within a given
state
Express Authority Ans: specifically bestowed on the agent
Implied Authority Ans: not expressly granted but assumed to have in
order to transact
Apparent Authority Ans: appearance of authority based on the actions,
words, or deeds of the agent/insurer
National Association of Insurance Commissioners (NAIC) Ans: composed
of state commissioners from all 50 states, maintain the regulation of the
insurance industry, gives states recommendations
Aleatory Contract Ans: where the outcome is controlled by chance, and
the dollars that change hands are often of substantially unequal amounts
Contract of Adhesion Ans: one that is prepared by one party and either
accepted or rejected by the other, there's no negotiation
Indemnity Ans: insureds are restored to the financial position there were
initially in (no gain)
Parol Evidence Rule Ans: when parties put their agreement into final
complete, written form, evidence of prior understandings will not be
admitted to contradict the writing
Doctrine of Waiver Ans: a party, by her own actions has voluntarily
relinquished or surrendered a known right
Doctrine of Estoppel Ans: prevents a party from asserting a right to
which he would otherwise be entitled, because of their own actions they
misled someone who relied on this understanding to his own detriment (if
two innocent persons suffered, the one who caused the loss must bear it)
Equitable Remedies Ans: implementation strategies once the court has
decided what the understanding was between two parties, or at least
what it feels is fair under the circumstances
CFP (FP512) QUESTIONS WITH DETAILED
VERIFIED ANSWERS
Risk Ans: the possibility of a loss, or a negative deviation from a
desired outcome
Peril Ans: the cause of that loss
Hazard Ans: increases the potential for a loss
Static Risks Ans: result from factors other than changes in the economy,
Ex: earthquake or flodd
Dynamic Risks Ans: result of the changes in the economy, such as
changes in the business cycle or inflation
Fundamental Risks Ans: affect a large group of people, Ex: earthquake
and recession
Particular Risk Ans: affect individuals or small group
Pure Risk Ans: involves only the chance of loss or no loss, no chance of
gain
Speculative Risk Ans: involves both the chance of loss and gain, ex:
gambling
Risk Management Process Ans: 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
, Page | 2
6. Implement the Recommendations
7. Monitor the Recomendations for needed changes
Risk Control Ans: seeks to minimize risk of loss
Risk Financing Ans: pays the costs of losses incurred
Law of Large Numbers Ans: must be a large number of potential losses
so that the insurer can reasonably apportion the expected financial loss
Insurable Interest Ans: when the interested party will suffer a financial
loss if the insured loss occurs
Coinsurance Ans: may be a splitting of costs, or a minimum percentage
of insurance that is required to avoid being penalized
Subrogation Ans: 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 Ans: respresent several insurance companies doing
business under the American agency system
Captive Agents Ans: represent only one company or group
Career Agents Ans: usually life insurance agents in a general agency,
often maintain selling contracts with other companies to better serve
clients
Producing General Agents Ans: 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 Ans: individuals who are licensed with and represent many
insurers
, Page | 3
Surplus and excess line Brokers Ans: handle any type of insurance that
cannot be purchased using normal distribution channels within a given
state
Express Authority Ans: specifically bestowed on the agent
Implied Authority Ans: not expressly granted but assumed to have in
order to transact
Apparent Authority Ans: appearance of authority based on the actions,
words, or deeds of the agent/insurer
National Association of Insurance Commissioners (NAIC) Ans: composed
of state commissioners from all 50 states, maintain the regulation of the
insurance industry, gives states recommendations
Aleatory Contract Ans: where the outcome is controlled by chance, and
the dollars that change hands are often of substantially unequal amounts
Contract of Adhesion Ans: one that is prepared by one party and either
accepted or rejected by the other, there's no negotiation
Indemnity Ans: insureds are restored to the financial position there were
initially in (no gain)
Parol Evidence Rule Ans: when parties put their agreement into final
complete, written form, evidence of prior understandings will not be
admitted to contradict the writing
Doctrine of Waiver Ans: a party, by her own actions has voluntarily
relinquished or surrendered a known right
Doctrine of Estoppel Ans: prevents a party from asserting a right to
which he would otherwise be entitled, because of their own actions they
misled someone who relied on this understanding to his own detriment (if
two innocent persons suffered, the one who caused the loss must bear it)
Equitable Remedies Ans: implementation strategies once the court has
decided what the understanding was between two parties, or at least
what it feels is fair under the circumstances
