1|Page
FP512 PRACTICE EXAM QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS
VERIFIED GRADED A+
Which of the following refers to the process of
evaluating and classifying the risk level of applicants for
insurance?
A)
Utilization review
B)
Underwriting
C)
Actuarial science
D)
Adverse selection - .....ANSWER ...✔✔ Underwriting is
the process of evaluating and classifying the risk level of
applicants for insurance. Underwriting may also help
insurers control adverse selection.
Choose the method of risk management that is
implemented by a homeowner who installs storm
shutters.
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A)
Retention
B)
Reduction
C)
Transfer
D)
Avoidance - .....ANSWER ...✔✔ The answer is
reduction. Installing storm shutters reduces the risk of
damage to the homeowner's property.
You have a meeting with Oscar, age 26, and his wife
Judith, age 25, this afternoon to review their risk
management plan. They have two children, two cars, a
home, and a boat. Oscar works at the local bank, and
Judith works at an engineering firm. Identify the
CORRECT statement(s) regarding their risk management
plan.
They have a limited amount of liability exposure.
They have a higher probability of becoming disabled
versus experiencing premature death.
Having collision insurance on their cars is more important
than liability coverage.
Long-term care insurance should not be a current priority
within their risk management plan.
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A)
IV only
B)
II and IV
C)
II, III, and IV
D)
I, II, and III - .....ANSWER ...✔✔ B
Oscar and Judith have unlimited liability exposure. A
car accident could lead to an unlimited amount of
liability depending on the circumstances, as well as the
possibility of negligence occurring on their property.
There is a higher probability of becoming disabled than
of experiencing premature death at their ages, and it is
much more important to have liability insurance on a
vehicle than collision coverage. Liability claims may be
much higher than any type of collision damage to a
vehicle. Both Oscar and Judith are too young to consider
long-term care insurance at this time.
Preston called Joanna, an insurance broker, to obtain
coverage on his 30-foot sailboat. Joanna told him to
send in a binder premium of $75. She told him that by
doing so, he would be covered and that he should go
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ahead and enjoy the boat. Joanna submitted an
application for insurance to Boater's Insurance Corp. for
issuance of the policy. Boater's declined the coverage.
The day Joanna learned this, Preston called and told her
a sudden wind caused him to lose control of his boat. He
then smashed into another sailboat, causing substantial
damage to both boats.
Who will be responsible for the damages?
A)
Boater's Insurance Corp. will have to pay the damages
since it did not notify Preston that he was not covered.
B)
Boater's will have to pay since Joanna collected a
premium from Preston.
C)
Preston will have to pay because no insurance policy is
in force until the insurance company accepts the risk.
D)
Joanna is respons - .....ANSWER ...✔✔ D
Joanna will have to pay because, as a broker, she
personally bound coverage for Preston but was unable
to place the coverage before the accident. Boater's
Insurance Corp. was never a party to an insurance
contract with Preston. Since Joanna is a broker, her
FP512 PRACTICE EXAM QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS
VERIFIED GRADED A+
Which of the following refers to the process of
evaluating and classifying the risk level of applicants for
insurance?
A)
Utilization review
B)
Underwriting
C)
Actuarial science
D)
Adverse selection - .....ANSWER ...✔✔ Underwriting is
the process of evaluating and classifying the risk level of
applicants for insurance. Underwriting may also help
insurers control adverse selection.
Choose the method of risk management that is
implemented by a homeowner who installs storm
shutters.
,2|Page
A)
Retention
B)
Reduction
C)
Transfer
D)
Avoidance - .....ANSWER ...✔✔ The answer is
reduction. Installing storm shutters reduces the risk of
damage to the homeowner's property.
You have a meeting with Oscar, age 26, and his wife
Judith, age 25, this afternoon to review their risk
management plan. They have two children, two cars, a
home, and a boat. Oscar works at the local bank, and
Judith works at an engineering firm. Identify the
CORRECT statement(s) regarding their risk management
plan.
They have a limited amount of liability exposure.
They have a higher probability of becoming disabled
versus experiencing premature death.
Having collision insurance on their cars is more important
than liability coverage.
Long-term care insurance should not be a current priority
within their risk management plan.
,3|Page
A)
IV only
B)
II and IV
C)
II, III, and IV
D)
I, II, and III - .....ANSWER ...✔✔ B
Oscar and Judith have unlimited liability exposure. A
car accident could lead to an unlimited amount of
liability depending on the circumstances, as well as the
possibility of negligence occurring on their property.
There is a higher probability of becoming disabled than
of experiencing premature death at their ages, and it is
much more important to have liability insurance on a
vehicle than collision coverage. Liability claims may be
much higher than any type of collision damage to a
vehicle. Both Oscar and Judith are too young to consider
long-term care insurance at this time.
Preston called Joanna, an insurance broker, to obtain
coverage on his 30-foot sailboat. Joanna told him to
send in a binder premium of $75. She told him that by
doing so, he would be covered and that he should go
, 4|Page
ahead and enjoy the boat. Joanna submitted an
application for insurance to Boater's Insurance Corp. for
issuance of the policy. Boater's declined the coverage.
The day Joanna learned this, Preston called and told her
a sudden wind caused him to lose control of his boat. He
then smashed into another sailboat, causing substantial
damage to both boats.
Who will be responsible for the damages?
A)
Boater's Insurance Corp. will have to pay the damages
since it did not notify Preston that he was not covered.
B)
Boater's will have to pay since Joanna collected a
premium from Preston.
C)
Preston will have to pay because no insurance policy is
in force until the insurance company accepts the risk.
D)
Joanna is respons - .....ANSWER ...✔✔ D
Joanna will have to pay because, as a broker, she
personally bound coverage for Preston but was unable
to place the coverage before the accident. Boater's
Insurance Corp. was never a party to an insurance
contract with Preston. Since Joanna is a broker, her
