CPCU® 540 Exam Questions

In this blog, we will break down two example CPCU® 540 exam questions. We will detail exactly how to solve each type of problem and provide some insight into the type of questions you will see on the CPCU® 540 exam.

These questions are taken directly from our CPCU® 540 online course, the questions are designed to mimic the format and feel of the actual exam.

The CPCU® 540 exam is difficult; the concepts are complex and the questions are tricky. You’ll be required to fully understand and apply every minor detail of the CPCU® 540 topics.

About the CPCU® 540 Exam Questions

The CPCU® 540 exam is a 65-minute virtual exam consisting of 50 multiple-choice questions. Exams are virtual, and non-proctored, meaning you take the exam alone online directly from your computer.

You can download one of our free practice exams to see what these questions look like.

Time constraint

Remember, the CPCU® 540  exam consists of 50 multiple-choice questions and you only have 65 minutes to complete the exam. That means, you only have about 1 minute and 18 seconds per exam question. That’s not a lot of time. You need to memorize all of the content of this exam to be able to quickly read, analyze, and correctly answer each scenario-based question.

CPCU® 540 Sample Exam Questions (First Sample Question)

Dave is comparing two insurance companies. Insurance Company A has a reserve-to-surplus ratio of 150% and a premium-to-surplus ratio of 280%. Insurance Company B has a reserve-to-surplus ratio of 195% and a premium-to-surplus ratio of 200%. Which of the following is true in regard to the comparison between Company A and Company B?

  1. Company B faces a great risk of insolvency and should be flagged by the NAIC.
  2. Company A faces a greater risk that a reserve underestimation will deplete the policyholder surplus.
  3. Company A faces a greater risk of insolvency than Company B.
  4. Company A is more profitable than Company B.    

 

Answer: C – Company A faces a greater risk of insolvency than Company B.

A concept question will not directly ask you to define anything, it will instead ask you a question in regards to a definition. This means you must fully understand the definition, fully understand all minor details about the definition, and fully understand how this definition is applied, meaning you must know “What is the reserve-to-surplus ratio”, “What is the premium-to-surplus ratio”, and “What is a ‘good’ ratio?”?

The answer is C because a higher premium-to-surplus ratio is bad. A higher ratio indicates the insurer is using its policyholder surplus to support written premium growth. This means the insurer is at greater risk of insolvency and has a lower capacity to write business. Company A faces a greater risk of insolvency than Company B.

For more concept questions, check out our CPCU® 540 practice exam.

CPCU® 540 Sample Exam Questions (Second Sample Question)

Jason invests in an income-generating asset that will pay out $300 after year 1, $500 after year 2, $600 after year 3, and $200 for 2 more years after year 3. What is the present value of Jason’s investment rounded to the nearest whole dollar, assuming a 3% interest rate?

  1. $1,484
  2. $1,662
  3. $4,231
  4. $5,068

 

Answer: B – $1,662

A case question will give you a scenario like the one seen above; you will be required to select the correct answer based on the given scenario. For a scenario question, you must fully understand what is being asked, fully understand what formula needs to be applied, and fully understand how to apply the formula.

In this case, the answer is B. To calculate the present value of unequal payments, use the present value table to calculate the individual present value of each payment, then sum the total of all present values.

PV = (FV Payment1 × PV Factor1) + (FV Payment2 × PV Factor2) + (FV Payment3 × PV Factor3)

Step 1) Determine present value factor: In year 1, n = 1 and r = 3%; in year 2, n = 2 and r = 3%; in year 3, n = 3 and r = 3%; in year 4, n = 4 and r = 3%; in year 5, n = 5 and r = 3%

Step 2) PV = ($300 × 0.971) + ($500 × 0.943) + ($600 × 0.915) + ($200 × 0.889) + ($200 × 0.863)

Step 3) PV = $291.30 + $471.50 + $549 + $177.80 + $172.60 = 1,662.20

For more case and formula-based questions, check out our CPCU® 540 practice exam.

Free Practice Exam

Ready to get started studying? We’re here to help (for free). Download our free CPCU® 540 practice exam to get a feel for the type of questions you will see on the exam. This includes the formulas and present/future value tables for your exam.

Download: Free Practice Exam (CPCU® | ARM™ | AINS™ | API™)

More Information

For more information about the CPCU® 540 exam, check out some of our other free resources:

Disclaimer

Remember, every CPCU® exam is different. No single exam is the same. Be sure to study ALL topics (not just our recommendation). This resource is intended to provide you with a general idea of where your focus should be. Make sure to thoroughly study every topic of this exam.

Difficulty rank, importance rank, and the advice provided in this resource are solely the opinion of AssociatePI. This resource is intended to provide you with a general idea of where your focus should be. Each exam administered by The Institutes is different. AssociatePI is not affiliated with The Institutes or involved in the exam writing process. Please be sure to thoroughly study every chapter and every topic of this course.

CPCU® exams are administered by the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI does not administer the actual exams, we are an independent resource of free content, advice, and study material for professional insurance education. This blog is intended for informational purposes only, to inform prospective students of the benefit of the CPCU® designation.

CPCU® and API are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources related to the Institutes’ designations or other programs.

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