CPCU® 500

Practice Exam

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 Table of Contents
Topic Page
Practice Exam 3
Practice Exam Answers 8
More Free Resources 15
Next Step 16

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 CPCU® 500 – Practice Exam
This Practice Exam
In this practice exam, we provide you with ten questions from our CPCU® 500 Online
Course.

These questions are designed to prepare you for the type of questions that you will see
on the CPCU® 500 exam.

Each question of this practice exam was written by a CPCU® expert that has passed the
CPCU® 500 exam, meaning we know exactly which topics are important and how the
questions are formatted.

That is why we designed our CPCU® 500 Online Course and Quizzes to focus on these
topics, helping you simplify the studying process and ease of memorizing the complex
concepts.

Please note: These ten practice questions are intended to provide an introduction to the
type of questions that you will see on the exam. These practice questions alone will not
allow you to pass this exam. We recommend you take at least 300 practice exam
questions before you sit for the official exam. The more you practice the better prepared
you will be, and you will likely uncover topics that need further studying.

Answers: You can find the answers to each question on page 8 of this download.

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
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any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
 CPCU® 500 Exam Questions
(See page 8 for answers)

1. All of the following are examples of risk management innovation

resulting from technological advances except?

A. Accelerometer
B. Computer vision
C. Internet of things
D. Holistic risk management

2. Which of the following exemplifies step four of the risk-

management process?

A. ABX Company purchases commercial property insurance for their new

warehouse.
B. Jake, a risk-management professional, analyzes the ABX Company's
internal and external threats to identify potential loss exposures.
C. The ABX risk-management team makes a list of all risks faced by the
organization.
D. Mindy, a risk-management analyst for ABX Company, revises the current
risk-management plan to better reduce the risk of fire loss exposure.

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
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3. Karen, an employee of EBC Company in the investment
management department, manages the retirement pension
accounts of all EBC employees. Karen invests 100% of employee
funds in her husband’s startup business venture. EBC Company
employees are suing EBC Company because the startup business
went bankrupt, losing all of the retirement funds of the EBC
employees. This type of loss would be covered under which
insurance policy of EBC Company?

A. Fiduciary liability insurance

B. Errors and omissions coverage
C. Investment professional liability insurance
D. Employment practices liability coverage

4. Which of the following is not an insurable loss exposure

characteristic?

A. Definite and measurable

B. Loss value exceeds deductible
C. Noncatastrophic
D. A large number of similar exposures

5. Managing the cost of risk is what type of goal?

A. Risk control
B. Avoidance
C. COPE
D. Risk financing

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
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any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
6. XYZ Company’s building and personal property form contains a
coinsurance clause stating that the building must be insured to at
least 90% of the property value. XYZ Company’s property value is
$450,000 and they insure the building for $425,000. How much
would XYZ’s insurer pay in the event of a loss that caused
$435,000 in property damage?

A. $456,481
B. $450,000
C. $435,000
D. $425,000

7. What watercraft coverage is available under the personal auto

policy?

A. $1,500 limit for property damage to watercraft

B. $300,000 limit for liability and $10,000 for medical payments to others
C. Physical damage to a boat trailer
D. Combines physical damage, liability, and medical payments coverage

8. Which of the following is an analysis to help a company develop

strategies that target strengths and reduce weaknesses?

A. Corporate level
B. Strategic management process
C. SWOT
D. Five Forces

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
9. The CEO of Intel Management, a computer software sales
company, has decided to expand its operations to begin selling
and fixing computer hardware. What type of strategy is this?

A. Backward integration
B. Differentiation
C. Functional level
D. Corporate-level

10. Which of the following is true in regard to a mission statement?

A. Describes what a company wishes to accomplish

B. Specifies the structure of the organization
C. This is created in a corporate level strategy
D. Describes the organization’s purpose and goals

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
 CPCU® 500 Practice Exam Answers
1. D) Holistic risk management
Answer Explanation: Holistic risk management is not a technological innovation.
Technology is constantly evolving; it is a crucial aspect of Big Data and the
insurance industry. The amount of data available to the insurer is rapidly
increasing as technology evolves.

The advancement in technology is largely the result of smart products. A smart

product is an item that collects, processes, and transmits data. This product can
connect and share data with other smart products.

The use of smart products and technology is used in preventative analytics.

Preventative analytics is the use of statistical analysis to prevent future events.
For example, using heat sensors to collect data, a manufacturing company can
determine the exact temperature that a machine breaks down. This data can
then be used to automatically turn off the machine before it reaches this
temperature.

Important technological advances for insurance include these:

• Artificial Intelligence (AI)

• Computer vision
• Drones
• Internet of Things
• Robotics
• Sensors
• Smartphones

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
2. A) ABX Company purchases commercial property
insurance for their new warehouse.
Answer Explanation: Purchasing insurance is an example of step four in the
risk-management process.

Step 4: Treat the Risks – Once the risk is analyzed, a risk-management

treatment must be selected and implemented to mitigate the risk. Implementation
means the individual or organization takes action on the plan and works to apply
their chosen risk-management techniques. For example, purchasing and
installing loss-preventing devices and purchasing insurance is considered
implementing risk management.

The risk-management process is made up of a few key steps and activities. The
key risk-management activities that make up the risk-management process
include these:

• Step 1: Scan the environment for risks (scan, review, and analyze the risk
environment).
• Step 2: Identify the risks (identify any exposures or risks).
• Step 3: Analyze the risks (analyze exposures and risks).
• Step 4: Treat the risks (apply risk treatment).
• Step 5: Monitor the risks.

3. A) Fiduciary liability insurance

Answer Explanation: This type of loss would be covered under a fiduciary liability
insurance policy.

Fiduciary liability insurance provides liability coverage for a business or employee

for lawsuits and claims arising from the mismanagement of a company's
employee benefit plans. This provides coverage for lawsuits and claims alleging
the business or employee breached their fiduciary duties involving discretionary
judgment. For example, a lawsuit against the business for the business’s inability
to apply a duty of care when investing funds on behalf of the employees for the
employee's retirement savings.

The Employee Retirement Income Security Act (ERISA) is a statue regarding

employee benefits. This statute outlines and defines the parties that can be held
liable for a loss resulting from a breach of duty.

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
4. B) Loss value exceeds deductible
Answer Explanation: Insurers choose which exposure to insure based on the
characteristics of the exposure. Insurers call this an “insurable loss exposure,”
meaning the loss is predictable and profitable to insure. Some losses, such as
war, are not predictable and run the risk of financially bankrupting an insurer if
exposure occurs. For this reason, insurers choose to select exposures that can
be profitably insured.

A loss exposure is considered insurable if it meets these six characteristics of an

insurable loss:

• Accidental
• Definite and can be measured.
• Economical
• Not catastrophic
• Pure risk
• Similar exposure units

Loss value exceeds deductible is not one of the characteristics of an insurable

loss.

5. D) Risk financing
Answer Explanation: There are five risk-financing goals:

• Improved liquidity management

• Legal compliance
• Loss payment
• Reduced cost of risk
• Reduce uncertainty

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
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related to the Institutes' designations or other programs.
6. D) $425,000
Answer Explanation: In this case, XYZ Company’s insurer will pay $425,000.
The coinsurance loss condition states that, if the insured complies with the
coinsurance condition, meaning the insured meets or exceeds the percentage
set by the policy, then the insurer agrees to pay for the full covered loss up to the
insurance limit less any deductible. No penalty is applied if the insured complies
with this condition.

XYZ Company is in compliance with the coinsurance condition. They are insured
to at least 90% of the property’s actual cash value ($425,000 insurance limit ÷
$450,000 actual cash value = 94.4%).

Because XYZ Company is in compliance with the coinsurance provision, this

means his insurance company will pay for the full covered loss up to the
insurance limit less any deductible.

In XYZ Company’s case, the insurer will only pay $425,000 because the loss
exceeds the policy limits. XYZ Company’s insurance limit is $425,000 and the
loss amount is $435,000. Because the loss amount ($435,000) exceeds the
insurance limit ($425,000) XYZ Company’s insurer will only pay $425,000 for the
loss.

7. C) Physical damage to a boat trailer

Answer Explanation: The personal auto policy only provides coverage for the
boat trailer. This policy covers any liability resulting from the insured’s use of a
boat trailer. This also covers, if included in the auto policy, any physical damage
incurred by the boat trailer.

The personal auto policy does not provide any coverage for the actual watercraft.
This does not cover any physical damage or liability for the watercraft; this only
covers liability and damage to the watercraft trailer.

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
8. C) SWOT
Answer Explanation: SWOT analysis is a process used to analyze a company’s
internal and external environment. This identifies the company’s strengths,
weaknesses, opportunities, and threats. This analysis helps the insurer develop
strategies that target strengths and reduce weaknesses.

9. D) Corporate-level
Answer Explanation: This is a diversification strategy, which is a type of
corporate-level strategy. A corporate-level strategy is allocated throughout the
organization from the top down by the CEO and executive team.

10. D) Describes the organization’s purpose and goals

Answer Explanation: A mission statement is a broad description of a company’s
purpose and goals. This statement describes the company’s services, product,
stakeholders, and core values.

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
Pass your CPCU® 500 exam using our comprehensive online course or your
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Having helped thousands pass their CPCU® 500 exams with a 99% success
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designed to help you pass your exam in less time with less studying.

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
 Prepare for the CPCU® 500 exam with real practice questions formatted
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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
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 CPCU® 500 – More Resources
For more information about the CPCU® 500 exam, please visit the following links:
• CPCU® 500 overview
• CPCU® 500 exam questions
• CPCU® 500 exam format
• CPCU® 500 exam difficulty
• CPCU® 500 video series
• CPCU® 500 slide Series
• CPCU® Designation Overview
• CPCU® Designation Salary
• CPCU® Cost
• CPCU® Exam Pass Rates
• CPCU® Video Series
• CPCU® Slide Series

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AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.
 CPCU® 500 – Next Steps
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you are ready to study and pass this difficult exam:
• Step 1: Enroll in the CPCU® 500 Free Chapter One Course.
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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
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related to the Institutes' designations or other programs.
 CPCU® 500 – GOOD LUCK
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Now it’s time to go back and study. Re-read through your notes and practice exam.
Refer back to any topics that you find difficult.

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every minor detail.

If you have any questions about the CPCU® 500 exam, contact us at
[email protected].

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CPCU® and API™ are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”).
AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in
any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources
related to the Institutes' designations or other programs.