CFP Risk Management and Insurance Planning Practice Questions

Correct answer: A. $260,000

Split limits apply to each injured person up to the per-person limit and to the accident in total up to the per-accident limit. Payments of $100,000, $100,000 and $60,000 equal $260,000, within the $300,000 aggregate.

• AA. Per-person limits cap the first two claims at $100,000 each, plus $60,000, for $260,000, below the per-accident cap.
• BB. This pays full damages, exceeding both the per-person and the per-accident limits.
• CC. This applies the per-accident limit alone, ignoring that each claimant is capped at the per-person limit.
• DD. This applies the per-person limit once to the whole accident rather than to each injured claimant.

• Source: Exam outline: CFP Board Principal Knowledge Topics (2021 practice analysis), accessed October 2026

Correct answer: D. HSA balances are owned by the employee, are fully portable, and generally roll over year to year, while FSA funds are typically 'use-it-or-lose-it,' subject to limited carryover or grace-period exceptions

HSAs are individually owned, fully portable across jobs, and unused balances roll over indefinitely, growing tax-deferred. FSAs are employer-owned accounts subject to 'use-it-or-lose-it' rules, with only a limited carryover amount or a short grace period permitted by the IRS, and balances are generally forfeited upon termination unless COBRA continuation of the FSA is elected. FSAs do not require HDHP enrollment, and both accounts can accept pre-tax contributions.

• AA. Wrong. This reverses the accounts' characteristics; it's the HSA, not the FSA, that is portable and belongs to the employee after separation.
• BB. Wrong. Both HSA and FSA contributions can be made on a pre-tax basis through payroll and are not reported as taxable W-2 wages; that isn't the key distinguishing feature between the two.
• CC. Wrong. Only the HSA requires enrollment in a qualifying high-deductible health plan, and the two accounts have different contribution limits.
• DD. Correct. HSAs are employee-owned, fully portable, and roll over year to year, while FSA funds are generally 'use-it-or-lose-it' subject only to limited carryover or grace-period exceptions.

• Source: 26 U.S.C. § 223, accessed October 2026

Correct answer: C. Quantify lost earnings, childcare replacement, debts and goals for each spouse separately

Each spouse's death creates an economic loss that includes lost earnings, the cost of replacing unpaid childcare, debts and goals. A needs analysis for each spouse is sounder than a multiple of income.

• AA. A multiple of income ignores the family's actual obligations and the assets available to meet them.
• BB. The lower earner's death also creates real costs, especially replacing childcare, so leaving that spouse uninsured creates a gap.
• CC. Correct: a separate needs analysis for each spouse captures earnings, caregiving, debts and goals.
• DD. Childcare replacement is a real, measurable cost even though it has no pay stub.

• Source: Exam outline: CFP Board Principal Knowledge Topics (2021 practice analysis), accessed October 2026

Correct answer: B. The dwelling is covered on an open-perils basis, while personal property is covered only against perils specifically named in the policy

The HO-3 'Special Form' is the most common homeowners policy and is distinguished by covering the dwelling and other structures on an open-perils (all-risk) basis - covered unless specifically excluded - while personal property (Coverage C) is covered only against named perils listed in the policy, similar to an HO-2 broad form. An HO-5 upgrades personal property to open-perils as well.

• AA. Incorrect - this describes an HO-5 policy, not a standard unendorsed HO-3.
• BB. Correct - this is the defining coverage structure of an HO-3 policy.
• CC. Incorrect - reverses the actual structure; the dwelling, not contents, gets open-perils treatment.
• DD. Incorrect - this describes an HO-2 broad form, not HO-3.

• Source: Exam outline: CFP Board Principal Knowledge Topics (2021 practice analysis), accessed October 2026

Correct answer: A. Risk retention

Risk retention means consciously choosing to bear a potential loss oneself rather than transferring it to an insurer, typically because the exposure is small or self-insurable. Sarah is retaining the collision risk by declining coverage and relying on her own savings. Risk avoidance would mean not owning or driving the car at all; risk transfer would mean buying the coverage; risk reduction would involve steps like defensive driving courses or antilock brakes to lower loss frequency/severity, not a coverage decision.

• AA. Correct. By declining coverage and relying on her own savings to absorb a potential loss, Sarah is retaining the risk herself rather than transferring or eliminating it.
• BB. Wrong. Risk avoidance would mean not owning or driving the car at all, eliminating the exposure entirely.
• CC. Wrong. Risk transfer would mean shifting the financial burden to an insurer by purchasing collision coverage, which she declined to do.
• DD. Wrong. Risk reduction involves lowering the frequency or severity of loss (e.g., safety features), not deciding to absorb the financial consequence.

• Source: Exam outline: CFP Board Principal Knowledge Topics (2021 practice analysis), accessed October 2026

Correct answer: A. Needs approach (needs analysis)

The needs approach totals the specific financial needs a family would face at the insured's death (debt payoff, final expenses, education, income replacement, etc.) and nets out available resources to arrive at the insurance need. This contrasts with the human life value approach, which capitalizes the present value of the insured's future after-tax earnings capacity without itemizing specific needs.

• AA. Correct - itemizing debts, expenses, education, and income replacement, net of assets, is the hallmark of the needs approach.
• BB. Incorrect - human life value estimates the present value of future earnings, not itemized family needs.
• CC. Incorrect - the income multiple approach applies a flat multiple (such as 10 times annual income) to earnings and does not itemize debts, final expenses, or education costs or subtract existing assets.
• DD. Incorrect - this approach insures a fixed percentage of current income. It does not total specific liabilities and goals or net out liquid assets and existing coverage.

• Source: Exam outline: CFP Board Principal Knowledge Topics (2021 practice analysis), accessed October 2026

Correct answer: A. $219,000

The total benefit pool equals the daily benefit multiplied by 365 days per year multiplied by the benefit period in years: $200 × 365 × 3 = $219,000. The 90-day elimination period is a waiting period before benefits begin paying. Like a deductible in time rather than dollars. And it does not reduce the size of the benefit pool once benefits start; it simply delays the start date. Answer C ($73,000) mistakenly uses only one year of benefits, and D ($18,000) mistakenly calculates only the elimination-period days rather than the benefit period.

• AA. Correct. The lifetime maximum pool is daily benefit × days in the benefit period: $200 × (3 × 365) = $200 × 1,095 = $219,000; the elimination period affects when benefits start, not the size of the pool.
• BB. $201,000 doesn't match daily benefit × total covered days over the 3-year benefit period and appears to reflect an incorrect day count.
• CC. $73,000 corresponds to only one year's worth of benefits ($200 × 365), not the full 3-year benefit period the policy provides.
• DD. $18,000 is far too low and doesn't reflect the daily benefit multiplied by the actual number of days in a 3-year benefit period.

• Source: Exam outline: CFP Board Principal Knowledge Topics (2021 practice analysis), accessed October 2026