Try 10 focused CFP® questions on Risk Management and Insurance Planning, with answers and explanations, then continue with Securities Prep.
| Field | Detail |
|---|---|
| Exam route | CFP® |
| Issuer | CFP Board |
| Topic area | Risk Management and Insurance Planning |
| Blueprint weight | 11% |
| Page purpose | Focused sample questions before returning to mixed practice |
Use this page to isolate Risk Management and Insurance Planning for CFP®. Work through the 10 questions first, then review the explanations and return to mixed practice in Securities Prep.
| Pass | What to do | What to record |
|---|---|---|
| First attempt | Answer without checking the explanation first. | The fact, rule, calculation, or judgment point that controlled your answer. |
| Review | Read the explanation even when you were correct. | Why the best answer is stronger than the closest distractor. |
| Repair | Repeat only missed or uncertain items after a short break. | The pattern behind misses, not the answer letter. |
| Transfer | Return to mixed practice once the topic feels stable. | Whether the same skill holds up when the topic is no longer obvious. |
Blueprint context: 11% of the practice outline. A focused topic score can overstate readiness if you recognize the pattern too quickly, so use it as repair work before timed mixed sets.
These questions are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.
Topic: Risk Management and Insurance Planning
Daniel, 56, and Priya, 54, expect to retire at 63. They are healthy today, but Priya’s mother spent five years in a nursing facility and Daniel helped pay part of the cost when family savings ran short. The couple is finishing their youngest child’s college costs, wants to protect retirement assets for the surviving spouse, and does not want future care needs to become a burden on their children. They have strong earnings now, but expect tighter cash flow after retirement. What is the best recommendation?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: They should begin long-term care planning now because the risk is already relevant and their current health and earnings give them more options than they are likely to have after retirement. Early planning better supports their goals of protecting retirement assets, preserving survivor security, and avoiding a burden on their children.
Long-term care planning often should begin before retirement, not after it, when clients already have a meaningful exposure and clear planning goals. Here, the couple has direct family experience with extended care costs, wants to preserve retirement resources for the surviving spouse, and expects cash flow to tighten once work income stops. Starting now allows the planner to evaluate care preferences, family caregiving limits, and funding methods while the couple is still healthier and has stronger income.
Waiting until retirement may feel simpler, but it usually means less flexibility and potentially fewer choices.
Beginning now preserves more insurability and funding flexibility while supporting their asset-protection and family goals.
Topic: Risk Management and Insurance Planning
Dr. Elena Park, 38, is an orthopedic surgeon earning $420,000. Her hospital’s group long-term disability plan pays 60% of base salary up to $8,000 per month, and because the hospital pays the premium, any benefit would be taxable; her household’s core expenses are $17,000 per month and depend mainly on her income. She wants protection if a hand injury stops her from performing surgery but she could still teach or consult. Which recommendation best aligns with sound disability income planning?
Best answer: A
What this tests: Risk Management and Insurance Planning
Explanation: A CFP professional should compare the employer plan’s actual after-tax benefit with the client’s spending need, not rely on the nominal 60% figure. For a high-income surgeon, the $8,000 monthly cap creates a major shortfall, and an own-occupation policy addresses the risk of losing surgical income while still being able to work elsewhere.
Disability income planning starts with actual income dependence and the limits of existing coverage. Here, the household relies mainly on Dr. Park’s earnings, core expenses are $17,000 per month, and the employer plan is capped at $8,000 per month before tax. Because the employer pays the premium, the benefit would be taxable, so the net amount available for living expenses would be even lower.
Her occupation also matters. A surgeon faces specialty-specific risk: a hand injury could end surgical earnings even if she remains able to teach or consult. An individual policy with an own-occupation definition is designed for that gap.
The best planning action is to calculate the after-tax shortfall first and then supplement the group plan, rather than assume the employer benefit is enough.
The group benefit is capped and taxable, so she needs supplemental own-occupation coverage to protect her surgical income.
Topic: Risk Management and Insurance Planning
Marisol, age 41, asks whether she has a major disability income protection gap. Her CFP professional reviews the case file below.
Exhibit: Disability income summary
Which interpretation or planning action is fully supported by the exhibit?
Best answer: B
What this tests: Risk Management and Insurance Planning
Explanation: Marisol’s apparent gap is smaller than it first appears because she already has meaningful employer disability coverage. The exhibit shows an estimated after-tax LTD benefit of $4,500 against a $5,800 monthly need, so any additional coverage should target the remaining shortfall rather than gross salary.
When evaluating a disability income gap, compare the client’s essential spending during disability with realistic after-tax replacement income already in place. Here, the exhibit shows that Marisol’s employer benefits materially reduce the need for additional coverage.
The key point is that existing employer benefits shrink the protection gap substantially, but they do not eliminate it or justify assuming extra government benefits not shown.
The exhibit shows employer disability benefits already cover most of the need, leaving only about $1,300 per month uncovered.
Topic: Risk Management and Insurance Planning
Jordan and Maya, both 45, ask their CFP professional to review major risks before they add more money to their taxable investment account. They have no business ownership and no rental property.
Exhibit: Insurance summary
| Item | Current status |
|---|---|
| Net worth | $2.7 million |
| Auto liability | $250,000/$500,000/$100,000 |
| Home liability | $300,000 |
| Personal umbrella | None |
| Household drivers | Two adults and one 17-year-old newly licensed driver |
Based only on the exhibit, which recommendation is the best next step?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: The exhibit shows a classic catastrophic liability gap: substantial assets, a newly licensed teen driver, and no personal umbrella coverage. The best next step is to prioritize umbrella protection and confirm the auto and homeowners liability limits required beneath it.
A catastrophic exposure is a low-frequency, high-severity risk that can seriously damage a client’s financial plan, so it should be addressed before lower-priority planning moves. Here, the key facts are a $2.7 million net worth, a newly licensed teen driver, and no personal umbrella policy. A severe auto or personal liability claim could exceed the existing home and auto liability limits, leaving assets exposed. The most appropriate next step is to recommend a personal umbrella policy and coordinate the underlying liability limits that umbrella carriers typically require. Focusing only on one policy or on asset-titling strategies does not fully address the immediate excess-liability risk shown in the exhibit.
Their high net worth, newly licensed teen driver, and no umbrella indicate a major excess-liability gap best addressed with umbrella coverage over adequate home and auto limits.
Topic: Risk Management and Insurance Planning
A CFP professional is reviewing the Rivera family’s insurance needs. They can afford only one meaningful coverage improvement this year.
Exhibit: Insurance summary
Which planning action should be prioritized first?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: The most urgent uncovered risk is loss of Alex’s income. The family depends heavily on that salary, has young children, and holds only a small emergency fund, so protecting the primary earnings stream should come before other gaps when the budget allows just one addition.
When budget limits force triage, the CFP professional should prioritize the risk that would most quickly and severely disrupt the client’s plan and that the household cannot easily self-insure. Here, Alex earns most of the family’s income, yet Alex has no long-term disability coverage. The family also has only $14,000 in reserves against $9,800 of essential monthly expenses, so a disability could create an immediate cash-flow crisis in a little over a month.
Additional life insurance on Alex may deserve later review, but the exhibit already shows meaningful death-benefit coverage and does not establish a clear life-insurance shortfall. Taylor’s disability matters, but the income at risk is much smaller. Liability coverage may also be reviewed later, yet the exhibit does not show a more urgent liability exposure than the loss of the primary earner’s paycheck.
With one affordable fix this year, income protection on Alex is the strongest priority.
Alex provides most of the household income, and the exhibit shows no long-term disability coverage plus minimal reserves to absorb a prolonged earnings loss.
Topic: Risk Management and Insurance Planning
Marcus and Elena, ages 39 and 37, have two children, a $620,000 mortgage, $90,000 in cash reserves, and $160,000 in taxable investments. Marcus earns $230,000 and provides about 80% of household income. They ask their CFP professional whether they should self-insure more by raising their homeowners deductible, dropping collision on a 14-year-old car worth about $4,000, and canceling Marcus’s long-term disability policy. What is the most appropriate next step?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: The CFP professional should first test whether each potential uninsured loss is manageable from available assets and cash flow. Small property losses may be reasonable to retain, but a primary earner’s disability risk can create a much larger, goal-threatening loss.
Self-insuring means retaining risk, so the next step is to analyze each exposure individually rather than making an all-or-nothing insurance decision. The key test is whether the clients could absorb the loss from liquid assets and ongoing cash flow without materially harming core goals. In this scenario, a larger homeowners deductible or dropping collision on a low-value car could be reasonable because those losses are limited and more predictable. Canceling the primary earner’s long-term disability coverage is different because the potential loss is large, could last for years, and would threaten family cash flow, debt service, and child-related goals.
Premium savings matter only after this analysis; they are not the primary decision rule.
Self-insurance should be evaluated exposure by exposure, based on whether a loss can be absorbed without derailing the clients’ goals.
Topic: Risk Management and Insurance Planning
Monica and David, both 42, have $3.5 million in liquid investments, no debt, and a paid-off extra car worth $4,000. They are considering dropping collision and comprehensive coverage on that car. Separately, Eric, 39, is the sole earner for a family of four, has $35,000 in cash reserves, and no other disability coverage. He wants to cancel his long-term disability policy to cut expenses. Which recommendation best matches these situations?
Best answer: B
What this tests: Risk Management and Insurance Planning
Explanation: Self-insuring is most reasonable when the client can absorb the loss without derailing the plan. Monica and David can handle a $4,000 car loss from liquid assets, but Eric’s disability risk could eliminate the household’s main income for years, which $35,000 of reserves cannot support.
The key self-insurance test is whether the client can retain the risk without materially harming cash flow, lifestyle, or long-term goals. Monica and David’s possible uninsured loss is limited to a low-value car, and they have ample liquid assets to replace or repair it. Eric’s risk is different: disability insurance protects earning power, and the potential loss is large, uncertain, and potentially long lasting. As the sole earner with only $35,000 in reserves and no backup coverage, he would be retaining a catastrophic risk rather than a manageable one. Self-insurance is generally more appropriate for smaller, affordable losses than for severe income-loss exposures. The closest trap is assuming that any emergency fund is enough to self-insure a risk that could last years.
The car loss is small relative to Monica and David’s liquid assets, but Eric cannot absorb a potentially catastrophic long-term income loss with modest reserves.
Topic: Risk Management and Insurance Planning
Jordan and Priya, both 42, have two children. Jordan earns $180,000 and Priya earns $40,000. If Jordan dies, Priya wants $100,000 a year of support for 15 years, the $350,000 mortgage paid off, $120,000 for college, and $30,000 for final expenses. Jordan has $500,000 of group life coverage, and they are willing to use $150,000 of savings for survivor needs. After confirming these goals and figures, what is the CFP professional’s best next step?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: Once the planner has confirmed the client’s goals and available resources, the next step is analysis, not product selection or implementation. A high-level life insurance needs analysis estimates survivor income replacement, adds debt and other liquidity needs, and then reduces that total by existing coverage and usable assets.
The core concept is a capital-needs life insurance analysis. After discovery is complete, the CFP professional should first estimate the lump sum needed to meet the survivor’s income goal and other obligations, then compare that need with resources already available.
Only after that estimate is prepared should the planner evaluate policy type, face amount recommendations, and implementation details. Moving straight to a salary multiple, underwriting, or illustrations skips the required needs analysis.
The next step is to quantify the death benefit need by combining income replacement, debt, and liquidity needs, then subtracting available coverage and assets.
Topic: Risk Management and Insurance Planning
A CFP professional reviews the following case file for Jordan and Alex Chen, both age 41 and in good health.
Exhibit: Insurance and cash-flow summary
Based only on this exhibit, which protection gap is most urgent to address?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: The most urgent gap is disability income protection on Jordan. The family relies heavily on Jordan’s $185,000 salary, yet Jordan has no long-term disability coverage and only limited sick leave, while the household’s savings would cover only a few months of reduced expenses.
This is primarily an income-continuation problem. Jordan is the dominant earner, but a long disability would leave the household trying to cover about $7,200 per month of reduced expenses with only $24,000 in emergency reserves and no long-term disability benefit. That makes uninsured loss of earnings the most immediate threat to the family’s financial plan.
The other risks are less urgent under the exhibit’s facts:
When one spouse’s earnings support most of the household, an uninsured disability on that spouse is often the first protection gap to fix.
Jordan provides most of the household income, has no long-term disability coverage, and the cash reserve would not sustain expenses for long.
Topic: Risk Management and Insurance Planning
Dr. Elena Park, 41, is an orthopedic surgeon earning $420,000, including a $180,000 productivity bonus. Her spouse is not currently employed, the household relies almost entirely on her income, and they keep about six months of expenses in cash while continuing retirement and 529 savings. Her hospital’s long-term disability plan pays 60% of base salary only, capped at $12,000 per month; the hospital pays the premium, and the definition changes from own occupation to any occupation after 24 months. A CFP professional recommends supplemental individual disability income coverage. Which fact is MOST decisive in supporting that recommendation?
Best answer: C
What this tests: Risk Management and Insurance Planning
Explanation: The decisive issue is the mismatch between Elena’s surgeon-level earnings and what her employer plan would actually replace after tax. Because the group coverage is capped, based only on salary, and limited in definition, it may leave a major long-term shortfall even though she already has employer coverage.
When evaluating disability income needs, the first step is to compare the client’s occupation-based earning risk with the after-tax income actually available from existing coverage. Elena earns a large portion of her compensation from surgical work and bonus income, yet her group LTD covers only 60% of base salary, is capped monthly, and is likely taxable because the employer pays the premium. The definition also becomes less protective after 24 months, which matters for a highly specialized professional who may be unable to perform surgery but still be capable of other work.
Her family’s dependence on her income increases the urgency, but the most decisive fact is the employer plan’s inability to replace enough occupation-relevant income. That is why supplemental individual disability coverage is the strongest planning response.
Her occupation-specific earnings and the employer plan’s cap, tax treatment, and limited definition create the clearest long-term income gap.
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