CPCU 500 EXAM QUESTIONS CHAPTERS 1 - 8
Key questions in determining insurable interest - Answers -1. What is insurable interest
2. When must insurable interest exist
3. Why require insurable interest
4. What is the legal basis of insurable interest
5. What happens when insurable interest overlap
Problems associated with maintain insurance to value - Answers -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 - Answers -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 - Answers -1. actual cash
value
2. replacement cost
3. agreed value approach
4. functional value
Valuation of Liability Losses are typically based on - Answers -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 - Answers -1. The applicable policy limit
2. The compensable amount of the loss
Purposes of deductibles - Answers -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
Distinguishing Characteristics of Insurance Contracts - Answers -1. The principle of
indemnity
2. Utmost good faith
3. Fortuitous losses
4. Contract of adhesion
5. Exchange of unequal amounts
6. Conditional
7. Nontransferable
Two concepts reduce the moral hazards associated with indemnification - Answers -1.
Insurance should not over indemnify
2. Insured's should only be indemnified once per loss
Methods by which insurers achieve an equitable distribution of risk cost - Answers -1.
Insurance rating plans
2. Coinsurance in property insurance
3. Subrogation
Forces that work against actuarial equity - Answers -1. Insurance regulations
2. Social equity
3. No-fault insurance laws
Approaches to Insurance Policy Construction - Answers -1. Self Contained policy
2. Modular policy
3. Pre-printed Policy
4. Manuscripted Policy
A Self Contained Policy Can Be Either - Answers -1. Mono-line Policy
2. Package Policy
A Modular Policy Does - Answers -1. Minimizes gaps and overlaps
2. Provides consistent terminology and definitions
3. Uses fewer forms
4. Makes underwriting more efficient
5. Reduces adverse selection when the same insurer provides several types of
insurance for the same insured
6. Results in a package discount when several coverage's are included in the same
policy.
Many insurers develop their own pre-printed nonstandard policies for - Answers -1. High
volume lines of insurance
2. Coverage's in which the insurers specialize
Key questions in determining insurable interest - Answers -1. What is insurable interest
2. When must insurable interest exist
3. Why require insurable interest
4. What is the legal basis of insurable interest
5. What happens when insurable interest overlap
Problems associated with maintain insurance to value - Answers -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 - Answers -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 - Answers -1. actual cash
value
2. replacement cost
3. agreed value approach
4. functional value
Valuation of Liability Losses are typically based on - Answers -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 - Answers -1. The applicable policy limit
2. The compensable amount of the loss
Purposes of deductibles - Answers -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
Distinguishing Characteristics of Insurance Contracts - Answers -1. The principle of
indemnity
2. Utmost good faith
3. Fortuitous losses
4. Contract of adhesion
5. Exchange of unequal amounts
6. Conditional
7. Nontransferable
Two concepts reduce the moral hazards associated with indemnification - Answers -1.
Insurance should not over indemnify
2. Insured's should only be indemnified once per loss
Methods by which insurers achieve an equitable distribution of risk cost - Answers -1.
Insurance rating plans
2. Coinsurance in property insurance
3. Subrogation
Forces that work against actuarial equity - Answers -1. Insurance regulations
2. Social equity
3. No-fault insurance laws
Approaches to Insurance Policy Construction - Answers -1. Self Contained policy
2. Modular policy
3. Pre-printed Policy
4. Manuscripted Policy
A Self Contained Policy Can Be Either - Answers -1. Mono-line Policy
2. Package Policy
A Modular Policy Does - Answers -1. Minimizes gaps and overlaps
2. Provides consistent terminology and definitions
3. Uses fewer forms
4. Makes underwriting more efficient
5. Reduces adverse selection when the same insurer provides several types of
insurance for the same insured
6. Results in a package discount when several coverage's are included in the same
policy.
Many insurers develop their own pre-printed nonstandard policies for - Answers -1. High
volume lines of insurance
2. Coverage's in which the insurers specialize
