Try 12 focused CFP® Cases case questions on Insurance and Risk Management, with explanations, then continue with Securities Prep.
Try 12 focused CFP® Cases case questions on Insurance and Risk Management, with explanations, then continue with Securities Prep.
| Field | Detail |
|---|---|
| Exam route | CFP® Cases |
| Topic area | Insurance and Risk Management |
| Blueprint weight | 14% |
| Page purpose | Focused case questions before returning to mixed practice |
These cases are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.
Topic: Insurance and Risk Management
Insurance file: Leah and Martin
Leah Wong, 37, is a self-employed physiotherapist in Ontario earning about $132,000 before tax. She has no group disability or health benefits. Martin Caron, 39, earns $84,000 as a municipal employee and has a DB pension, taxable employer-paid LTD equal to 66.7% of salary, and group life of two times salary. They have two children, ages 5 and 2, a $585,000 mortgage, a three-month emergency fund, and want to keep RESP contributions on track.
They can spend a maximum of $425 per month on new insurance. Their stated priorities are protecting income, keeping the home if either parent dies or becomes disabled, and avoiding products that crowd out debt repayment and education savings.
Existing and preliminary analysis
| Item | Planner’s note |
|---|---|
| Leah existing term life | $250,000, 9 years remaining |
| Martin existing personal term life | $300,000, 11 years remaining |
| Additional life need | Leah: about $650,000; Martin: about $350,000 |
| Leah disability risk | About $3,900 monthly family cash-flow shortfall after 90 days |
| Martin disability risk | Manageable because of group LTD and expense flexibility |
| Leah medical note | Mild hand/wrist symptoms last year; no time off work |
Indicative monthly premiums
| Coverage | Premium |
|---|---|
| Leah individual disability: $4,000/month, 90-day wait, to age 65 | $270 |
| Leah 20-year term life: $650,000 | $56 |
| Martin 20-year term life: $350,000 | $34 |
| Joint decreasing mortgage life: $585,000 | $86 |
| Critical illness: $100,000 each, 20-year term | $175 |
| Leah whole life: $100,000 | $205 |
Leah may also sign a personally guaranteed $120,000 clinic equipment loan and lease next year if she expands her practice.
Which insurance package best balances the severity of the risks, affordability, and Leah and Martin’s stated priorities?
Best answer: B
What this tests: Insurance and Risk Management
Explanation: The best package protects the family against the highest-severity, least-covered risks first. Leah’s lack of disability coverage creates a major income-protection gap, and the term top-ups cover the quantified death needs while staying within the $425 monthly limit.
Insurance recommendations should prioritize risks that are severe, likely to disrupt the plan, and not already covered, while respecting cash-flow limits. Leah’s disability risk is the largest uninsured exposure because her income is central to the household and she has no group LTD. Term life is the most cost-effective way to cover the temporary mortgage and child-support period. Together, Leah disability coverage and the two term top-ups cost about $360 per month, leaving some budget margin and preserving RESP and debt-payment priorities. Mortgage life, critical illness, and permanent insurance may have roles in other cases, but here they do not address the most urgent quantified gaps as efficiently.
This package addresses the largest uninsured income risk and both quantified life gaps within the monthly budget.
For the next six months, cash flow allows only $300 per month for new coverage. Which staged sequence is most appropriate?
Best answer: B
What this tests: Insurance and Risk Management
Explanation: When coverage must be staged, the first step should address the most damaging uninsured exposure. Leah’s potential disability would create a continuing cash-flow shortfall after the emergency fund period, so starting that coverage now is the best sequence.
Sequencing is not only about premium size; it is about what risk would most impair the plan if it occurred before the next stage. Leah’s disability exposure is both severe and currently uninsured. Her income supports the mortgage, children’s costs, and RESP savings, and Martin’s income alone would not cover the identified shortfall. The term-life gaps are important, but they can be added when the monthly budget increases if only one item fits now. Deferring all applications is risky because insurability can change, especially with Leah’s hand/wrist history.
This addresses the most severe uninsured risk immediately while preserving the planned term coverage when cash flow improves.
If Leah’s disability offer includes a permanent hand-and-wrist exclusion, what is the most appropriate implementation response?
Best answer: C
What this tests: Insurance and Risk Management
Explanation: Implementation requires confirming that the issued policy still meets the planning need. For a physiotherapist, excluding hand-and-wrist claims could materially undermine the disability recommendation, so the planner should revisit suitability before Leah accepts it.
An insurance recommendation is not complete when an application is submitted. Underwriting may produce ratings, exclusions, reduced benefits, or modified definitions that change the recommendation’s value. Leah’s occupation depends heavily on physical capacity, so a hand-and-wrist exclusion could exclude a realistic cause of claim. The planner should explain the trade-off, compare alternatives such as other insurers or modified benefit designs, and document Leah’s informed decision. The key is not to treat a policy as suitable simply because it was approved or fits the budget.
A hand-and-wrist exclusion may remove protection for a key occupational risk for a physiotherapist.
Which future event would most strongly trigger an immediate insurance review before the next annual meeting?
Best answer: A
What this tests: Insurance and Risk Management
Explanation: A major new guaranteed business obligation would materially change Leah and Martin’s risk profile. It could require revisiting disability, life insurance, and possibly business overhead protection because the family could become responsible for fixed obligations if Leah cannot work.
Insurance plans should be reviewed when client circumstances change in a way that affects risk exposure, coverage needs, ownership, beneficiaries, or affordability. Leah’s personally guaranteed clinic loan and lease would create new fixed obligations tied to her ability to work and maintain the practice. That is more significant than routine savings or pension updates. The review should consider whether personal disability coverage remains adequate, whether life coverage should reflect the guaranteed debt, and whether business overhead expense insurance is appropriate if the practice has ongoing fixed costs.
The new guaranteed debt and fixed business obligations would change both income-protection and liability-planning needs.
Topic: Insurance and Risk Management
Jasmine Chen, 41, is an incorporated physiotherapist in Ontario. Ryan Ellis, 44, is a national sales manager. They are married with children ages 6 and 10. Their mortgage is $610,000 and a renovation HELOC is $70,000. Essential household spending is about $7,800 per month, and their emergency fund is $22,000.
Jasmine recently missed three weeks of work after a wrist injury and says her clinic revenue stops quickly if she cannot treat clients. Ryan’s income includes a $110,000 salary plus variable commissions. They ask whether they can reduce insurance premiums by about $260 per month without creating a major family risk.
| Coverage | Summary provided | Planner note |
|---|---|---|
| Ryan group life | 2 × salary, plus $100,000 optional spouse life | HR screen only; portability not confirmed |
| Ryan group LTD | 66.7% of monthly earnings, max $7,000/month | HR screen says employer-paid; commission treatment unclear |
| Jasmine term-20 life | $500,000, level premium, bought 2018 | Personally owned; beneficiary confirmation not yet obtained |
| Mortgage creditor life/disability | Declining life up to mortgage balance; disability may pay mortgage for up to 24 months | Certificate not received; lender is beneficiary |
| Ryan association AD&D | $250,000 | Pays only for accidental death or specified injuries |
| Critical illness | Ryan $25,000 group; Jasmine none | No needs analysis completed |
Which coverage issue is the clearest gap to address before reducing premiums?
Best answer: A
What this tests: Insurance and Risk Management
Explanation: The clearest gap is disability protection for Jasmine because her earned income depends directly on her ability to work as a physiotherapist. Mortgage creditor disability may be limited and unverified, and it does not replace her broader household income need.
Insurance-gap analysis starts with the client’s largest unfunded financial exposure. Jasmine is self-employed through her clinic, recently had a work-limiting injury, and has no confirmed individual disability policy. A short-term mortgage-payment benefit would not cover all household expenses, business disruptions, retirement savings, or long-term loss of earning capacity. Ryan’s group coverages require review, but they do not address Jasmine’s personal disability risk. The key takeaway is to distinguish a partial debt-payment feature from true income-replacement protection.
Her income stops quickly if she cannot treat clients, and the summary shows no personally owned disability policy.
Which coverage item is most unsuitable to count as core all-cause family income-replacement protection?
Best answer: C
What this tests: Insurance and Risk Management
Explanation: AD&D is not a substitute for life insurance because it pays only for accidental death or specified injuries. A family income-replacement analysis should not treat it as broad all-cause death protection.
A common insurance-summary error is counting narrow-benefit policies as if they cover the same risk as life insurance. AD&D may be useful as supplemental coverage, but it excludes deaths from illness and many non-accidental causes. By contrast, term life, group life, and creditor life may all have limitations, yet they are designed to respond to death more broadly if eligibility and contract conditions are met. The planning takeaway is to classify coverage by the risk it actually insures, not by the dollar amount shown on the summary.
AD&D responds only to accidental death or specified injuries, not death from illness or most other causes.
What should the planner verify before relying on Ryan’s group LTD in the risk analysis?
Best answer: B
What this tests: Insurance and Risk Management
Explanation: Group LTD should not be relied on from a brief HR screen alone. The planner needs contract-level verification of what earnings are insured, whether benefits are taxable, what offsets apply, and how the benefit is defined and limited.
Existing coverage analysis requires verification, not just client recollection or a benefits-summary snapshot. For Ryan, commissions are a material part of income, and the HR screen already leaves their treatment unclear. If the employer pays LTD premiums, benefits may be taxable, reducing usable cash flow. Offsets, waiting periods, maximum monthly benefits, and the disability definition can also materially change the protection available. The closest trap is assuming 66.7% of earnings means 66.7% of Ryan’s actual take-home income.
These details determine the amount, reliability, and after-tax value of Ryan’s disability benefit.
What is the most important next information need before advising on the mortgage creditor life and disability coverage?
Best answer: B
What this tests: Insurance and Risk Management
Explanation: The planner should not recommend cancelling creditor insurance solely because it looks overlapping or expensive. The exact certificate terms and the clients’ ability to qualify for suitable personal replacement coverage determine whether cancellation would create an uninsured gap.
Creditor insurance can overlap with personal life or disability coverage, but it may also be the only current protection tied to a major debt. Before advising on cancellation, the planner should review eligibility rules, exclusions, benefit limits, beneficiary structure, duration, and whether underwriting is completed before or after claim. The planner should also confirm that replacement insurance has been approved and is in force if replacement is recommended. The key takeaway is to verify both the coverage being removed and the coverage intended to replace it.
The planner needs to know the existing limitations and whether suitable replacement coverage can actually be obtained.
Topic: Insurance and Risk Management
Martins household — insurance discovery meeting
Sofia Martins, 41, owns an incorporated occupational therapy practice in Calgary. Her spouse, Ethan, 43, is a public school vice-principal with a defined benefit pension and group benefits. They have two children, ages 8 and 5. Sofia also sends $800 per month to her mother, who may move to Alberta within two years.
Sofia pays herself a $72,000 salary and variable dividends of $70,000 to $110,000. Most practice revenue depends on Sofia personally seeing clients. Her corporation has a five-year clinic lease, an admin contract costing $2,200 per month, and a line of credit Sofia personally guaranteed. Ethan earns $118,000 annually.
Their home has a $590,000 mortgage and a $75,000 HELOC. They rent the basement suite on a short-term rental platform about 50 nights per year. Sofia also keeps therapy equipment and electronic client records at home and drives to clients’ homes. She says the insurer knows she works from home, but she is unsure whether the rental or business driving was discussed.
Coverage notes provided by the clients
| Coverage | Information available |
|---|---|
| Sofia individual disability | $3,500/month, old summary only, non-cancellable, own-occupation to 65 |
| Association disability | Up to $4,000/month, income proof at claim, booklet not provided |
| Association business overhead | Portal shows a checkmark, amount unknown |
| Personal term life | $500,000 each, 11 years of level premiums remaining |
| Mortgage/HELOC insurance | Approved by phone, no certificate on file |
| Ethan group coverage | Life 2x salary; LTD 66 2/3% of salary |
They came in because premiums feel high. Sofia asks whether she can cancel her individual disability policy and rely on the association coverage and bank insurance.
Sofia asks whether she can cancel her individual disability policy. Which follow-up question best clarifies the risk exposure before any coverage recommendation?
Best answer: D
What this tests: Insurance and Risk Management
Explanation: The best follow-up focuses on Sofia’s economic loss if she becomes disabled. Her salary, dividends, clinic lease, admin contract, and personally guaranteed line of credit create exposure that cannot be assessed by looking only at premium cost or policy labels.
Disability risk discovery starts by identifying what financial obligations would remain and what income would stop if the client could not work. For an incorporated professional whose revenue depends on personal services, the exposure may include lost salary, lost dividends, business overhead, lease commitments, debt guarantees, and the household’s ongoing spending. Only after the exposure is understood should the planner compare it with policy definitions, benefit amounts, waiting periods, tax treatment, and offsets. A product feature such as the waiting period is relevant later, but it does not first answer how much risk Sofia is carrying.
This identifies the economic loss from Sofia’s disability, including personal income and continuing business obligations.
The planner has old summaries and portal screenshots but no complete contracts. What information request best supports verification of existing coverage?
Best answer: C
What this tests: Insurance and Risk Management
Explanation: Verification requires primary coverage documents, not client recollection or screenshots. Policy contracts, certificates, current statements, and client consent to contact insurers allow the planner to confirm what coverage actually exists before identifying gaps or recommending changes.
In insurance discovery, a planner should distinguish reported coverage from verified coverage. Old summaries and portal checkmarks may omit key provisions such as the definition of disability, benefit period, offsets, exclusions, underwriting status, tax treatment, owner, beneficiary, conversion rights, and cancellation terms. With client consent, obtaining current contracts and certificates supports competent analysis and clear documentation. This is especially important here because Sofia is considering cancelling a potentially valuable individual disability policy while relying on incomplete association and creditor-insurance information.
This allows the planner to verify actual coverage terms rather than relying on informal summaries.
For the personal life insurance review, which follow-up question best clarifies the Martins household’s economic exposure?
Best answer: D
What this tests: Insurance and Risk Management
Explanation: Life insurance exposure is driven by what financial needs arise at death. The Martins have debts, young children, possible childcare needs, education goals, and support for Sofia’s mother, so the key discovery question should identify the amount and duration of those needs.
A life insurance needs analysis begins with the survivor’s required resources, not with a product type or a beneficiary change. Relevant needs include debt repayment, final expenses, emergency liquidity, income replacement, childcare, education funding, and continuing support obligations. In this case, bank mortgage insurance may address only lender debt and may not provide flexible cash to the survivor. The existing $500,000 term policies cannot be judged adequate until the planner understands what the death benefit is intended to fund and for how long.
This captures the main capital and income needs the survivor may face if either spouse dies.
Which follow-up question best clarifies the liability and property exposure created by Sofia’s work and the basement rental?
Best answer: C
What this tests: Insurance and Risk Management
Explanation: The key risk issue is whether Sofia’s actual activities match what her insurers know and cover. Short-term rentals, home-based business property, client records, and business driving can create exclusions or endorsement needs under personal policies.
Property and liability discovery should identify activities that may change the insured risk. Personal home and auto policies often depend on accurate disclosure of occupancy, rental use, business property, client visits, data storage, and vehicle use. If the insurer has not accepted these exposures, a claim could be limited or denied, or additional endorsements or commercial coverage may be required. The planner does not need to design coverage immediately; the first step is clarifying whether the current policies match the real use of the home and vehicle.
Disclosure confirms whether personal home and auto policies may exclude or limit these activities.
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