Free CFP Exam Risk Management and Insurance Planning Practice Questions
Risk management and insurance planning on the CFP exam tests analysis of life, health, disability, property, and liability insurance needs, along with risk assessment and mitigation strategies for clients at various life stages (CFP Board).
Sample Questions
Question 1
Easy
When conducting an insurance needs analysis using the needs approach, which of the following represents the correct sequencing of steps?
Solution
D is correct.
The needs approach follows a logical sequence: (1) estimate the survivors' ongoing income replacement needs (housing, food, utilities, education), (2) add lump-sum capital needs at death (final expenses, mortgage payoff, emergency fund, education fund, debt elimination), (3) total the capital required to fund all identified needs, and (4) subtract existing resources (current insurance, savings, Social Security survivor benefits, spouse's income) to determine the insurance gap.
The needs approach follows a logical sequence: (1) estimate the survivors' ongoing income replacement needs (housing, food, utilities, education), (2) add lump-sum capital needs at death (final expenses, mortgage payoff, emergency fund, education fund, debt elimination), (3) total the capital required to fund all identified needs, and (4) subtract existing resources (current insurance, savings, Social Security survivor benefits, spouse's income) to determine the insurance gap.
Question 2
Medium
Which of the following best describes the law of large numbers as it applies to insurance?
Solution
D is correct.
The law of large numbers is a fundamental statistical principle stating that as the number of independent exposure units (policyholders) increases, the actual results will more closely approximate the expected (predicted) results. This allows insurers to predict aggregate losses with greater precision and set appropriate premiums.
The law of large numbers is a fundamental statistical principle stating that as the number of independent exposure units (policyholders) increases, the actual results will more closely approximate the expected (predicted) results. This allows insurers to predict aggregate losses with greater precision and set appropriate premiums.
Question 3
Hard
Under the ACA (Affordable Care Act), which of the following is true regarding guaranteed issue for individual health insurance purchased through the marketplace?
Solution
D is correct.
Under the ACA, individual health insurance sold through the marketplace is guaranteed issue, meaning insurers must accept all applicants regardless of pre-existing conditions, health status, or claims history. Additionally, insurers cannot vary premiums based on health status; premiums can only vary based on age, tobacco use, geographic area, and family size.
Under the ACA, individual health insurance sold through the marketplace is guaranteed issue, meaning insurers must accept all applicants regardless of pre-existing conditions, health status, or claims history. Additionally, insurers cannot vary premiums based on health status; premiums can only vary based on age, tobacco use, geographic area, and family size.