CPCU 500 COMPREHENSIVE EXAM
QUESTIONS AND CORRECT ANSWERS
STUDY GUIDE
●● Problems associated with maintain insurance to value
Answer: 1. The amount of insurance required to maintain insurance to
value is based on the property's value at the time of loss, but the limit is
chosen at the time of policy inception
2. The insured often selects the policy limits based on his best guess, not
on a valid appraisal.
3. Even with an appraisal, the true insurable value at the time of loss
cannot be measured exactly until the property is actually repaired or
replaced
4. Values fluctuate over time
●● Insurance buyers can minimize those four problems by
Answer: 1. Using a professional appraiser to determine the current
replacement cost value and then reappraising the property every few
years
2. Adjusting the appraisal annually using indexes and/or a record of
additions and deletions
3. Reviewing and revising limits periodically
4. Using appropriate coverage options such as
Agreed value optional coverage
,Inflation guard protection
Peak season endorsement
●● Approaches used in property insurance to value property
Answer: 1. actual cash value
2. replacement cost
3. agreed value approach
4. functional value
●● Valuation of Liability Losses are typically based on
Answer: 1. The relevant policy provisions and
2. The extent of the bodily injury and/or property damage to others
●● The most the insurer will pay is the lesser of
Answer: 1. The applicable policy limit
2. The compensable amount of the loss
●● Purposes of deductibles
Answer: 1. To reduce the insurer's cost by eliminating the inefficiencies
of dollar trading and eliminating insurer loss settlement and other
administrative expense for loss under the deductable.
2. To encourage risk control
3. To reduce the morale and moral hazard incentive
, ●● How deductibles are handled in liability insurance: the insurer
Answer: 1. Defends the claim on a first - dollar basis
2. Pays all covered losses
3. Bills the insured for the amount of losses up to the deductible.
●● Limited use of liability deductibles
Answer: 1. The insurer wants the insured to report every claim and not
play adjuster and attorney. Simply, the insurer wants to control the claim
settlement.
2. The premium credit would be small
3. Few people sue for small amounts
4. The insurer must try to collect the deductible amount from the
insured.
●● Other sources of recovery that affect amounts payable
Answer: 1. Noninsurance agreements, warranties, guarantees, lease
agreements, service agreements etc.
2. Third parties
3. Other insurance in the same policy
4. Other insurance in a similar policy
5. Other insurance in a dissimilar policy
QUESTIONS AND CORRECT ANSWERS
STUDY GUIDE
●● Problems associated with maintain insurance to value
Answer: 1. The amount of insurance required to maintain insurance to
value is based on the property's value at the time of loss, but the limit is
chosen at the time of policy inception
2. The insured often selects the policy limits based on his best guess, not
on a valid appraisal.
3. Even with an appraisal, the true insurable value at the time of loss
cannot be measured exactly until the property is actually repaired or
replaced
4. Values fluctuate over time
●● Insurance buyers can minimize those four problems by
Answer: 1. Using a professional appraiser to determine the current
replacement cost value and then reappraising the property every few
years
2. Adjusting the appraisal annually using indexes and/or a record of
additions and deletions
3. Reviewing and revising limits periodically
4. Using appropriate coverage options such as
Agreed value optional coverage
,Inflation guard protection
Peak season endorsement
●● Approaches used in property insurance to value property
Answer: 1. actual cash value
2. replacement cost
3. agreed value approach
4. functional value
●● Valuation of Liability Losses are typically based on
Answer: 1. The relevant policy provisions and
2. The extent of the bodily injury and/or property damage to others
●● The most the insurer will pay is the lesser of
Answer: 1. The applicable policy limit
2. The compensable amount of the loss
●● Purposes of deductibles
Answer: 1. To reduce the insurer's cost by eliminating the inefficiencies
of dollar trading and eliminating insurer loss settlement and other
administrative expense for loss under the deductable.
2. To encourage risk control
3. To reduce the morale and moral hazard incentive
, ●● How deductibles are handled in liability insurance: the insurer
Answer: 1. Defends the claim on a first - dollar basis
2. Pays all covered losses
3. Bills the insured for the amount of losses up to the deductible.
●● Limited use of liability deductibles
Answer: 1. The insurer wants the insured to report every claim and not
play adjuster and attorney. Simply, the insurer wants to control the claim
settlement.
2. The premium credit would be small
3. Few people sue for small amounts
4. The insurer must try to collect the deductible amount from the
insured.
●● Other sources of recovery that affect amounts payable
Answer: 1. Noninsurance agreements, warranties, guarantees, lease
agreements, service agreements etc.
2. Third parties
3. Other insurance in the same policy
4. Other insurance in a similar policy
5. Other insurance in a dissimilar policy
