Risk Management and Insurance Planning accounts for 11% of the CFP® Certification Examination (~19 questions) and is one of the highest-ROI domains because the questions follow strict mathematical and statutory rules.
Per VoraPrep's CFP analysis, mastering CFP Risk Management & Insurance Planning requires knowing five core frameworks: the Property Coinsurance Reimbursement Formula ((Did Buy / Should Have Bought) × Loss − Deductible), Homeowners Forms (HO-2, HO-3, HO-5, HO-4, HO-6) & Section I vs. II coverages, Disability Income Taxation (Employer-paid = taxable benefits; Employee after-tax = tax-free benefits), Life Insurance Taxation (IRC §101 transfer-for-value exceptions & §7702A MEC LIFO rules), and Medicare Parts A, B, C, D + Medigap & HSA rules. Drill all 8 CFP domains with VoraPrep's 6,915+ CFP Board-style questions.
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Key facts
- Official Governing Authority
- CFP Board (Certified Financial Planner Board of Standards) & Prometric
- Domain Weight
- 11% of the 170-question CFP Exam (~19 questions)
- Key Statutory Rules
- IRC §72 (Annuities), §79 (Group Term Life $50k), §101 (Life Death Benefits), §105/§106 (Health/Disability), §223 (HSAs), §7702A (Modified Endowment Contracts)
- VoraPrep CFP Coverage
- 152 interactive lessons, 6,915+ CFP MCQs, 27 multi-exhibit case studies, 1,489 FSRS flashcards ($25/mo or $199/yr)
1. CFP Property & Liability Insurance Formulas & Limits
| Rule / Coverage | Formula / Sublimit | CFP Exam Trap |
|---|---|---|
| Coinsurance Formula | [(Did Buy ÷ (80% × Replacement Cost)) × Loss] − Deductible | Subtract the deductible after applying the coinsurance ratio, never before! |
| Actual Cash Value (ACV) | Replacement Cost − Accumulated Depreciation | Standard HO-3 Coverage C (Personal Property) pays ACV unless the Replacement Cost endorsement is added |
| HO-3 Standard Coverage Ratios | Cov A: Dwelling ($X). Cov B (Other Structures): 10% of A. Cov C (Personal Property): 50% of A (10% away from premises). Cov D (Loss of Use): 20% of A. | Flood and Earthquake are always excluded on HO-3/HO-5 and require separate NFIP ($250k dwelling / $100k contents max) or earthquake policies |
| HO-3 Peril Sublimits (Theft/Special) | $200 cash/coins; $1,500 jewelry/watches/furs (theft), securities, watercraft, trailers; $2,500 firearms/silverware (theft) and business property on premises | High-value engagement rings or art should be scheduled on a Personal Articles Floater (Inland Marine) (open perils, $0 deductible, worldwide) |
| Personal Umbrella Policy | Excess liability ($1M–$5M+) + drop-down coverage subject to a Self-Insured Retention (SIR) | Requires underlying auto (e.g., 250/500/100) and homeowners ($300k Cov E) limits to be maintained; failing to maintain underlying limits leaves a coverage gap paid by the insured |
2. Life, Disability, Health & Long-Term Care Taxation Matrix
| Policy Type | Premium Deductible? | Benefits Taxable? | Key CFP Board Rule |
|---|---|---|---|
| Group Term Life (IRC §79) | Employer deducts | First $50,000 coverage is tax-free to employee; Table I cost for coverage >$50,000 is taxable W-2 income | Death benefit is still 100% income-tax-free to the beneficiary; discriminatory plans lose the $50k exclusion for Key Employees |
| Individual Disability (Own-Occupation vs. Any-Occupation) | Employee after-tax: Not deductible. Employer-paid: Deductible by employer | Employee after-tax: 100% Tax-Free benefits. Employer-paid: 100% Taxable benefits | If premiums are split 50/50 with after-tax employee dollars and employer dollars, 50% of the benefit is tax-free |
| Health Savings Account (HSA — IRC §223) | Triple Tax-Advantaged: Above-the-line deduction, tax-free growth, tax-free qualified medical withdrawals | Non-medical withdrawals before age 65 face ordinary income tax + 20% penalty; at age 65+, the 20% penalty disappears (taxed like a Traditional IRA) | Enrolling in Medicare Part A (including 6-month retroactive Part A lookback at age 65+) terminates HSA contribution eligibility |
| Qualified Long-Term Care (LTC) | Deductible as itemized medical expense (subject to age-based limits and 7.5% AGI floor); C-Corp deducts 100% | Tax-free up to the greater of actual LTC costs or the per-diem cap | Triggers: Inability to perform ≥2 of 6 ADLs (Bathing, Continence, Dressing, Eating, Toileting, Transferring) for 90+ days OR severe cognitive impairment |