CPCU Practice Exam Questions And

Chartered Property Casualty Underwriter (CPCU®) Practice Exam Questions And Correct Answers (Verified Answers) Plus Rationales 2026 Q&A | Instant Download Pdf

• Which of the following is a primary purpose of insurance?
• To guarantee profits for insurers
• To transfer risk from an individual to an insurer
• To eliminate all financial risk
• To increase investment opportunities for policyholders

Rationale: Insurance primarily exists to transfer risk from the insured to the

insurer, allowing individuals or businesses to manage potential financial losses.

• / 4

• In risk management, which of the following is considered a pure risk?
• Fluctuations in stock prices
• Fire damage to property
• Potential profit from a new product
• Currency exchange gains

Rationale: Pure risk involves situations that can only result in a loss or no

loss, not a gain, such as fire, theft, or natural disasters.

• Which of the following best defines the principle of indemnity?
• Compensation is paid regardless of the loss amount
• The insured should not profit from a loss
• The insurer guarantees replacement value
• Losses must be fully reimbursed plus interest

Rationale: The principle of indemnity ensures that the insured is restored to

their financial position prior to the loss, without profit.

• Which type of insurance policy covers losses that occur over time rather

than at a single event?

• Term life insurance
• Occurrence-based liability policy
• Fire insurance
• Marine cargo insurance 2 / 4

Rationale: Occurrence-based policies cover claims that happen during the

policy period, regardless of when the claim is reported.

• Which of the following statements is true about moral hazard?
• It relates to natural disasters
• It applies only to catastrophic events
• It arises when insureds intentionally increase risk
• It refers to market fluctuations

Rationale: Moral hazard occurs when individuals change their behavior in a

way that increases the likelihood or severity of a loss due to being insured.

• In property insurance, which of the following perils is typically covered

under a standard homeowners policy?

• Flood
• Earthquake
• Fire
• War

Rationale: Standard homeowners policies usually cover fire as a named peril,

whereas flood and earthquake typically require separate coverage.

• Which principle requires that an insurance contract be in writing and

clearly specify the terms and conditions? 3 / 4

• Utmost good faith
• Contribution
• Legal formality
• Subrogation

Rationale: Legal formality ensures that insurance contracts are enforceable

and clearly outline the rights and duties of the parties.

• Which of the following best describes adverse selection?
• Insurers avoiding risky clients
• High-risk individuals being more likely to purchase insurance
• Fraudulent claims
• Market fluctuations affecting premiums

Rationale: Adverse selection occurs when individuals with higher-than-

average risk are more likely to seek insurance, potentially increasing losses for insurers.

• Which type of liability arises from negligence without intentional harm?
• Strict liability
• Tort liability
• Contractual liability
• Absolute liability
• / 4