CPCU 520 Practice Actual Exam | Questions & Correct Answers
Latest Update 2025/2026 Guaranteed A
QUESTION: B. Risk Control ✓✓Correct Ans- Which one of the following departments can help marketing and
sales by proving to applicants and insureds that the insurer understands their business operations and
associated hazards and is prepared to help them protect their interests?
A. Claims
B. Risk control
C. Compliance
D. Information technology
QUESTION: B. creating a Business forecast ✓✓Correct Ans- James is leading a multi-departmental team in the
development of a new insurance policy for transportation network companies. The team is currently working
on establishing benchmarks such as the expected premium volume, the expected investment income, and the
level of producer involvement required in the sales process. Which one of the following steps of the product
development process are they involved in?
A. Creating a business forecast
B. Assessing opportunities
C. Defining the product, underlying support, and pricing
D. Selecting distribution systems and channels
QUESTION: D. Underwriting ✓✓Correct Ans- The value chain for an insurer contains three primary activities
and many support functions. Which one of the following primary activities involves selecting insureds, pricing
coverage, determining policy terms and conditions, and monitoring those decisions?
A. Claims
B. Accounting and finance
C. Marketing and distribution
D. Underwriting
QUESTION: D. Patrick's claim will be covered by the state guaranty fund. ✓✓Correct Ans- Patrick had a large
homeowners claim pending when his insurer became insolvent and was placed in receivership. Which one of
the following correctly describes how Patrick's claim will be handled if the insurer is unable to be rehabilitated?
A. Patrick's homeowners claim will be excluded from the state guaranty fund.
B. Patrick's claim will be covered only if funds remain after secured creditors have been paid.
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,C. Patrick's claim will be covered out of the available pool of liquidated assets.
D. Patrick's claim will be covered by the state guaranty fund.
QUESTION: A. Determining the amount of damages or extent of loss ✓✓Correct Ans- The processing of almost
every claim involves which one of the following activities?
A. Determining the amount of damages or extent of loss
B. Salvaging
C. Sending a reservation of rights letter to the insured
D. Subrogating
QUESTION: B. Subpoenaed. ✓✓Correct Ans- As methods of communication evolve, it's important for claims
professionals to remember that any written claims communication may be
A. Misinterpreted.
B. Subpoenaed.
C. Edited later.
D. Replaced with verbal communication.
QUESTION: C. An insured's negotiations with the insurer on a complex claim are not going well. ✓✓Correct
Ans- In which one of the following scenarios is a public adjuster most likely to become involved?
A. An insured is unable to afford legal representation to contest a claim.
B. An insurer finds it financially unfeasible to hire its own claims staff in a given state.
C. An insured's negotiations with the insurer on a complex claim are not going well.
D. A catastrophic disaster strikes, involving damage to many properties.
QUESTION: C. Cost to investigate, defend, and settle claims. ✓✓Correct Ans- Mia tracks loss adjustment
expense (LAE) as part of her management of the claims department for an insurer. Mia considers LAE to be the
A. Total incurred amount of claims.
B. Total amount of loss reserves of all claims.
C. Cost to investigate, defend, and settle claims.
D. Paid portion of claims.
QUESTION: D. Risk selection. ✓✓Correct Ans- Generally speaking, the most common application of predictive
modeling in insurance occurs in
2|Page
,A. Reinsurance.
B. Marketing.
C. Claims handling.
D. Risk selection.
QUESTION: B. Carefully selecting the applicants whose loss exposures they are willing to insure. ✓✓Correct
Ans- Underwriters can best minimize the effects of adverse selection by
A. Rejecting applicants who have had any prior losses.
B. Carefully selecting the applicants whose loss exposures they are willing to insure
C. Accepting all applicants that are submitted by the producer.
D. Choosing to insure only those risks with a high probability of loss.
QUESTION: A. The percentage of net receivables to total assets increased by 2 percent. ✓✓Correct Ans- An
underwriter is conducting vertical analysis using a common-size balance sheet for the past two fiscal years. The
underwriter notices the figure listed under "net receivables" is 11.5 percent for the current fiscal year
compared to 9.5 percent for the prior fiscal year. These figures indicate that
A. The percentage of net receivables to total assets increased by 2 percent.
B. The company's net sales increased by 2 percent.
C. The company efficiency has decreased by 2 percent.
D. The balance of the company's net receivables increased by 2 percent.
QUESTION: A. The field underwriter ✓✓Correct Ans- Tobias, a successful producer with Barnley's Insurance
Company, is struggling with an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only
has substantial collections of guns and silverware, but also has a small farm located at her premises. Which one
of the following individuals from Barnley Insurance Company could provide assistance and support to Tobias?
A. The field underwriter
B. The actuary
C. Corporate underwriter
D. The claims representative
QUESTION: A. It is used to assess the ability to meet financial obligations. ✓✓Correct Ans- Which one of the
following is a major purpose of the statement of cash flows?
A. It is used to assess the ability to meet financial obligations.
B. It is used by middle management to assess future resource needs.
3|Page
, C. It is used by insurance producers to balance daily bank deposits.
D. It is used in the cash allocation process by line managers.
QUESTION: C. The beginning balance on the statement of changes in shareholders' equity will show as $0.
✓✓Correct Ans- Bob's Manufacturing has been in business for one year. Which one of the following is true
regarding Bob's year-end financial statements?
A. The fact that there are no prior year reports will have no impact on the financial statements.
B. Change in cash on the statement of cash flow will be $0.
C. The beginning balance on the statement of changes in shareholders' equity will show as $0.
D. Cash on the balance sheet will be shown as $0.
QUESTION: A. Gross profit = sales - cost of goods sold ✓✓Correct Ans- Gross profit is reported on the income
statement. How is gross profit calculated?
A. Gross profit = sales - cost of goods sold
B. Gross profit = sales - cost of goods sold - operating income
C. Gross profit = sales - cost of goods sold + investment income
D. Gross profit = sales - operating expenses
QUESTION: B. Retained earnings. ✓✓Correct Ans- The portion of net income that is held onto by a company
and not distributed to stockholders is called
A. Dividends.
B. Retained earnings.
C. Paid-in capital.
D. Par value share.
QUESTION: A. Classifying and pricing accounts ✓✓Correct Ans- Sofie, a property underwriter for Cintriell
Insurance Company is reviewing a new homeowners application. Sofie has changed the protection class to
unprotected, as the fire protection class listed by the producer is an eight and is incorrect. Which one of the
following line underwriter activities is Sofie performing?
A. Classifying and pricing accounts
B. Coordinating with producer efforts
C. Recommending correct coverage
D. Selecting insureds
4|Page
Latest Update 2025/2026 Guaranteed A
QUESTION: B. Risk Control ✓✓Correct Ans- Which one of the following departments can help marketing and
sales by proving to applicants and insureds that the insurer understands their business operations and
associated hazards and is prepared to help them protect their interests?
A. Claims
B. Risk control
C. Compliance
D. Information technology
QUESTION: B. creating a Business forecast ✓✓Correct Ans- James is leading a multi-departmental team in the
development of a new insurance policy for transportation network companies. The team is currently working
on establishing benchmarks such as the expected premium volume, the expected investment income, and the
level of producer involvement required in the sales process. Which one of the following steps of the product
development process are they involved in?
A. Creating a business forecast
B. Assessing opportunities
C. Defining the product, underlying support, and pricing
D. Selecting distribution systems and channels
QUESTION: D. Underwriting ✓✓Correct Ans- The value chain for an insurer contains three primary activities
and many support functions. Which one of the following primary activities involves selecting insureds, pricing
coverage, determining policy terms and conditions, and monitoring those decisions?
A. Claims
B. Accounting and finance
C. Marketing and distribution
D. Underwriting
QUESTION: D. Patrick's claim will be covered by the state guaranty fund. ✓✓Correct Ans- Patrick had a large
homeowners claim pending when his insurer became insolvent and was placed in receivership. Which one of
the following correctly describes how Patrick's claim will be handled if the insurer is unable to be rehabilitated?
A. Patrick's homeowners claim will be excluded from the state guaranty fund.
B. Patrick's claim will be covered only if funds remain after secured creditors have been paid.
1|Page
,C. Patrick's claim will be covered out of the available pool of liquidated assets.
D. Patrick's claim will be covered by the state guaranty fund.
QUESTION: A. Determining the amount of damages or extent of loss ✓✓Correct Ans- The processing of almost
every claim involves which one of the following activities?
A. Determining the amount of damages or extent of loss
B. Salvaging
C. Sending a reservation of rights letter to the insured
D. Subrogating
QUESTION: B. Subpoenaed. ✓✓Correct Ans- As methods of communication evolve, it's important for claims
professionals to remember that any written claims communication may be
A. Misinterpreted.
B. Subpoenaed.
C. Edited later.
D. Replaced with verbal communication.
QUESTION: C. An insured's negotiations with the insurer on a complex claim are not going well. ✓✓Correct
Ans- In which one of the following scenarios is a public adjuster most likely to become involved?
A. An insured is unable to afford legal representation to contest a claim.
B. An insurer finds it financially unfeasible to hire its own claims staff in a given state.
C. An insured's negotiations with the insurer on a complex claim are not going well.
D. A catastrophic disaster strikes, involving damage to many properties.
QUESTION: C. Cost to investigate, defend, and settle claims. ✓✓Correct Ans- Mia tracks loss adjustment
expense (LAE) as part of her management of the claims department for an insurer. Mia considers LAE to be the
A. Total incurred amount of claims.
B. Total amount of loss reserves of all claims.
C. Cost to investigate, defend, and settle claims.
D. Paid portion of claims.
QUESTION: D. Risk selection. ✓✓Correct Ans- Generally speaking, the most common application of predictive
modeling in insurance occurs in
2|Page
,A. Reinsurance.
B. Marketing.
C. Claims handling.
D. Risk selection.
QUESTION: B. Carefully selecting the applicants whose loss exposures they are willing to insure. ✓✓Correct
Ans- Underwriters can best minimize the effects of adverse selection by
A. Rejecting applicants who have had any prior losses.
B. Carefully selecting the applicants whose loss exposures they are willing to insure
C. Accepting all applicants that are submitted by the producer.
D. Choosing to insure only those risks with a high probability of loss.
QUESTION: A. The percentage of net receivables to total assets increased by 2 percent. ✓✓Correct Ans- An
underwriter is conducting vertical analysis using a common-size balance sheet for the past two fiscal years. The
underwriter notices the figure listed under "net receivables" is 11.5 percent for the current fiscal year
compared to 9.5 percent for the prior fiscal year. These figures indicate that
A. The percentage of net receivables to total assets increased by 2 percent.
B. The company's net sales increased by 2 percent.
C. The company efficiency has decreased by 2 percent.
D. The balance of the company's net receivables increased by 2 percent.
QUESTION: A. The field underwriter ✓✓Correct Ans- Tobias, a successful producer with Barnley's Insurance
Company, is struggling with an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only
has substantial collections of guns and silverware, but also has a small farm located at her premises. Which one
of the following individuals from Barnley Insurance Company could provide assistance and support to Tobias?
A. The field underwriter
B. The actuary
C. Corporate underwriter
D. The claims representative
QUESTION: A. It is used to assess the ability to meet financial obligations. ✓✓Correct Ans- Which one of the
following is a major purpose of the statement of cash flows?
A. It is used to assess the ability to meet financial obligations.
B. It is used by middle management to assess future resource needs.
3|Page
, C. It is used by insurance producers to balance daily bank deposits.
D. It is used in the cash allocation process by line managers.
QUESTION: C. The beginning balance on the statement of changes in shareholders' equity will show as $0.
✓✓Correct Ans- Bob's Manufacturing has been in business for one year. Which one of the following is true
regarding Bob's year-end financial statements?
A. The fact that there are no prior year reports will have no impact on the financial statements.
B. Change in cash on the statement of cash flow will be $0.
C. The beginning balance on the statement of changes in shareholders' equity will show as $0.
D. Cash on the balance sheet will be shown as $0.
QUESTION: A. Gross profit = sales - cost of goods sold ✓✓Correct Ans- Gross profit is reported on the income
statement. How is gross profit calculated?
A. Gross profit = sales - cost of goods sold
B. Gross profit = sales - cost of goods sold - operating income
C. Gross profit = sales - cost of goods sold + investment income
D. Gross profit = sales - operating expenses
QUESTION: B. Retained earnings. ✓✓Correct Ans- The portion of net income that is held onto by a company
and not distributed to stockholders is called
A. Dividends.
B. Retained earnings.
C. Paid-in capital.
D. Par value share.
QUESTION: A. Classifying and pricing accounts ✓✓Correct Ans- Sofie, a property underwriter for Cintriell
Insurance Company is reviewing a new homeowners application. Sofie has changed the protection class to
unprotected, as the fire protection class listed by the producer is an eight and is incorrect. Which one of the
following line underwriter activities is Sofie performing?
A. Classifying and pricing accounts
B. Coordinating with producer efforts
C. Recommending correct coverage
D. Selecting insureds
4|Page
