CPCU 500 Exam Questions and Answers Grade A+
Pure risk - Answer-A chance of loss or no loss, but no chance of gain
ex: chance your house burns down
Speculative risk - Answer-a chance of loss, no loss, or gain
ex: purchasing a stock
credit risk - Answer-risk that customers or other creditors will fail to make promised payments
as they come due
subjective risk - Answer-the perceived amount of risk based on an individuals or organizations
opinion
objective risk - Answer-the measurable variation in uncertain outcomes based on facts and data
diversifiable risk - Answer-a risk that affects only some individuals, businesses, or small groups.
They are not highly correlated and can be managed through diversification.
Ex: diversified stock portfolio
non diversifiable risk - Answer-a risk that affects a large segment of society at the same time
ex: inflation, unemployment, natural disasters
systemic risk - Answer-the potential for a major disruption in the function of an entire market or
financial system
ex: housing crisis 2008
Market risk - Answer-uncertainty about an investment's future value because of potential
changes in the market for that type of investment
Liquidity risk - Answer-the risk that an asset cannot be sold on short notice without incurring a
loss
Enterprise risk management - Answer-an approach to managing all of an organizations key
business risks and opportunities with the intent of maximizing shareholder value. Manages all
risks including operational, financial, and strategic
, Loss exposure - Answer-any condition or situation that presents a possibility of loss. Has 3
elements - an asset exposed to loss, cause of loss, financial consequences of that loss.
Hazard - Answer-a condition that increases the frequency or severity of a loss
ex: gas by a fire place
Moral hazard - Answer-a condition that increases the likelihood that a person will intentionally
cause or exaggerate a loss
ex: overwhelming debt causing you to fabricate an insurance loss
Morale hazard (attitudinal hazard) - Answer-a condition of carelessness or indifference that
increases the frequency or severity of loss
ex: driving recklessly, failing to lock an unattended building
Physical hazard - Answer-A condition of property, persons, or operations that increases the
frequency and/or severity of loss
Ex: you are more likely to fall on an icy sidewalk
Legal hazard - Answer-A condition of the legal environment that increases the frequency and/or
severity of loss
Ex: a certain judge always rules in favor of plaintiff over insurance company
property loss exposure - Answer-the possibility that a person or organization will sustain a loss
resulting from damage to property in which they have a financial interest
tangible property - Answer-property that has a physical form. Can be divided into real and
personal property
real property - Answer-tangible property consisting of land, all structures permanently attached
to the land, and whatever is growing on the land
personal property - Answer-all tangible or intangible property that is not real property
intangible property - Answer-property that has no physical form
ex: copyrights, patents
liability loss exposure - Answer-any condition or situation that presents the possibility of a claim
alleging legal responsibility of a person or business for injury or damage suffered by another
party
Pure risk - Answer-A chance of loss or no loss, but no chance of gain
ex: chance your house burns down
Speculative risk - Answer-a chance of loss, no loss, or gain
ex: purchasing a stock
credit risk - Answer-risk that customers or other creditors will fail to make promised payments
as they come due
subjective risk - Answer-the perceived amount of risk based on an individuals or organizations
opinion
objective risk - Answer-the measurable variation in uncertain outcomes based on facts and data
diversifiable risk - Answer-a risk that affects only some individuals, businesses, or small groups.
They are not highly correlated and can be managed through diversification.
Ex: diversified stock portfolio
non diversifiable risk - Answer-a risk that affects a large segment of society at the same time
ex: inflation, unemployment, natural disasters
systemic risk - Answer-the potential for a major disruption in the function of an entire market or
financial system
ex: housing crisis 2008
Market risk - Answer-uncertainty about an investment's future value because of potential
changes in the market for that type of investment
Liquidity risk - Answer-the risk that an asset cannot be sold on short notice without incurring a
loss
Enterprise risk management - Answer-an approach to managing all of an organizations key
business risks and opportunities with the intent of maximizing shareholder value. Manages all
risks including operational, financial, and strategic
, Loss exposure - Answer-any condition or situation that presents a possibility of loss. Has 3
elements - an asset exposed to loss, cause of loss, financial consequences of that loss.
Hazard - Answer-a condition that increases the frequency or severity of a loss
ex: gas by a fire place
Moral hazard - Answer-a condition that increases the likelihood that a person will intentionally
cause or exaggerate a loss
ex: overwhelming debt causing you to fabricate an insurance loss
Morale hazard (attitudinal hazard) - Answer-a condition of carelessness or indifference that
increases the frequency or severity of loss
ex: driving recklessly, failing to lock an unattended building
Physical hazard - Answer-A condition of property, persons, or operations that increases the
frequency and/or severity of loss
Ex: you are more likely to fall on an icy sidewalk
Legal hazard - Answer-A condition of the legal environment that increases the frequency and/or
severity of loss
Ex: a certain judge always rules in favor of plaintiff over insurance company
property loss exposure - Answer-the possibility that a person or organization will sustain a loss
resulting from damage to property in which they have a financial interest
tangible property - Answer-property that has a physical form. Can be divided into real and
personal property
real property - Answer-tangible property consisting of land, all structures permanently attached
to the land, and whatever is growing on the land
personal property - Answer-all tangible or intangible property that is not real property
intangible property - Answer-property that has no physical form
ex: copyrights, patents
liability loss exposure - Answer-any condition or situation that presents the possibility of a claim
alleging legal responsibility of a person or business for injury or damage suffered by another
party
