CPSA CPIA 2 — Questions and Answers
Question 1: An insured has a $500 deductible and suffers a $3,200 loss. The insurer pays $2,700. This arrangement is an example of which deductible type?
- Straight deductible (Correct answer)
- Aggregate deductible
- Disappearing deductible
- Franchise deductible
Correct answer: Straight deductible
A straight deductible subtracts a fixed amount from every covered loss before the insurer pays.
Question 2: Which of the following best describes the concept of 'adverse selection' in insurance?
- Insurers cherry-picking only low-risk applicants
- Higher-risk individuals are more likely to seek and obtain insurance (Correct answer)
- Underwriters charging excessive premiums to all applicants
- Regulators mandating coverage for all risks
Correct answer: Higher-risk individuals are more likely to seek and obtain insurance
Adverse selection occurs when people with higher-than-average risk are disproportionately attracted to purchasing insurance.
Question 3: A businessowner policy (BOP) combines which two primary coverages?
- Workers compensation and general liability
- Commercial property and commercial general liability (Correct answer)
- Professional liability and cyber liability
- Commercial auto and umbrella
Correct answer: Commercial property and commercial general liability
A BOP packages commercial property insurance with commercial general liability coverage for eligible small-to-medium businesses.
Question 4: Under the principle of indemnity, what is the maximum amount an insured should receive after a covered loss?
- The policy limit regardless of actual loss
- The replacement cost of the property new
- An amount that restores the insured to the pre-loss financial position (Correct answer)
- The assessed market value plus 10% appreciation
Correct answer: An amount that restores the insured to the pre-loss financial position
Indemnity prevents profit from insurance by limiting recovery to the amount needed to restore the insured's pre-loss financial condition.
Question 5: Which coverage part of a commercial general liability (CGL) policy covers bodily injury or property damage claims made by third parties on the insured's premises?
- Coverage B – Personal and Advertising Injury
- Coverage C – Medical Payments
- Coverage A – Bodily Injury and Property Damage Liability (Correct answer)
- Coverage D – Products-Completed Operations
Correct answer: Coverage A – Bodily Injury and Property Damage Liability
Coverage A of the CGL addresses third-party bodily injury and property damage for which the insured is legally liable.
Question 6: What does 'subrogation' allow an insurer to do after paying a claim?
- Cancel the policy without notice
- Recover the paid loss amount from the negligent third party (Correct answer)
- Increase the insured's premium retroactively
- Transfer the policy to a new owner
Correct answer: Recover the paid loss amount from the negligent third party
Subrogation gives the insurer the legal right to pursue recovery from the responsible third party after compensating the insured.
Question 7: An umbrella policy that covers claims not covered by any underlying policy — in addition to providing excess limits — is called what?
- Excess-only policy
- True umbrella policy (Correct answer)
- Following-form excess policy
- Difference-in-conditions policy
Correct answer: True umbrella policy
A true umbrella policy both extends limits over underlying policies and may drop down to cover gaps not addressed by underlying coverage.
CPSA CPIA 2
An insured has a $500 deductible and suffers a $3,200 loss.
The insurer pays $2,700.
This arrangement is an example of which deductible type?