Earning your CPCU® designation can help you advance your insurance career, but you must first complete a number of courses that can be quite challenging. In this post, we’ll go over everything you need to know about the CPCU 540 course and give you tips on how to pass this exam.

What’s in this post

• About CPCU 540
  • What is the CPCU program?
  • What is CPCU 540?
  • How hard is CPCU 540?
  • About the CPCU 540 exam
  • Topics covered in CPCU 540
  • Topics you are most likely to see on the CPCU 540 exam
• Tips for passing CPCU 540 exam
• Learn about our CPCU 540 online study program
• Buy our CPCU 540 online study program

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What is the CPCU program?

The Chartered Property Casualty Underwriter (CPCU®) is a professional designation offered by an organization called The Institutes. After completing the program, you will have a solid understanding of how insurance industry works and can display the CPCU designation on your business cards, resume, etc.

Having this designation shows that you have done extra education, which can make you a stronger candidate for hire or promotion. Also, this might give customers, colleagues, and business partners more confidence in working with you because they know you have this foundational knowledge.

What is CPCU 540?

CPCU 540 is one of the five core courses that you are required to complete if you are following the traditional path to earn your CPCU designation.

This particular course is about various financial concepts that relate to the insurance industry. This knowledge will help you understand how insurance companies make money, how to evaluate an insurer or insured’s financial statements, and what kinds of financial risks an insurer or their insureds may face.

How hard is CPCU 540?

Many students are very intimidated by CPCU 540 because it contains lots of formulas and requires students to do a number of calculations. However, by using a well-designed course like ours and by going over the lessons a few times, you can amply prepare yourself and pass the exam. For our best tips and strategies on how to tackle this course, see the section below with out list of tips for passing CPCU 540.

About the CPCU 540 exam

In order to demonstrate that you have understood the material from this course, you will need to pass an online exam administered by The Institutes.

You must go through The Institutes' website to purchase and formally register for your exam. When registering, you must indicate which test window you plan to take the exam during. The four test windows that are available every year are:

• January 15 to March 15
• April 15 to June 15
• July 15 to September 15
• October 15 to December 15

You may pay for your exam fee at any time, and those who register before the test window opens will usually receive a discount. However, you can only launch the exam and complete it during the test window you chose at the time of purchase. If you need to reschedule your exam, a new fee will apply.

The exam consists of 50 questions that cover all the chapters from the course, with a time limit of 65 minutes. The exam is done online, and you must get a score of 70% or better to pass. You may retake the exam (and pay a new fee) if you do not pass, but please check The Institutes' policies regarding how often and how soon you can retake the exam, as that may change from time to time.

Topics covered in CPCU 540

• GAAP reporting standards
• SAP reporting standards
• Financial statements (balance sheet, income statement, statement of changes in shareholders’ equity, cash flow statements)
• Financial issues unique to insurers
• SAP financial ratios
• Insurance Regulatory Information System
• AM Best financial ratings
• Time value of money
• Bonds and stocks
• Investment portfolio management

Topics you are most likely to see on the CPCU 540 exam

The following list is based on student feedback regard what topics were most heavily-featured on their exam.

Please remember that this is not a comprehensive list of all the topics that will be tested, and each person’s exam may different. Any of the material covered in the course may potentially appear on your exam, so you should prepare accordingly.

• SAP ratio formulas
• Present value & future value calculations
• Financial statements

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Tips for passing CPCU 540

1) Remember: This is a finance & accounting class, not a math class

A lot of students are scared of CPCU 540 because they think of it as a math class, and it has been a long while since they were last in school. But the truth is, this is not a math class; it is a money class about accounting and investment strategies that insurers use. Just from your own personal daily life, you use money all the time so you are already familiar with really basic concepts like income, expenses, assets, etc. This is just applying those to the laws and business strategies that are unique to insurance companies.

Yes, there are some formulas, but most of them simply require you to divide one number by another, so you can definitely handle them. Plus, there is a lot of content that doesn’t involve calculations, so the majority of your test will be on concepts rather than formulas and numbers. Once you let go of the notion that this is a math-based class, the course is a lot less intimidating.

2) Start with our FREE Fundamentals lessons

CPCU 540 is all about various financial transactions affect an insurance company. Going into the course with a basic understanding of how insurers make money will help you better grasp the content you will be learning. We also have another free lesson on policyholders’s surplus, which is a major key concept that CPCU 540 is mainly centered around. If you understand these two topics BEFORE diving into CPCU 540, the entire course will make a lot more sense to you because you will know how all the concepts ties in to one of the most important financial goal for insurers: to maintain and adequate policyholders’ surplus.

3) Memorize the CPCU 540 formulas the easy way

While there is debate about whether or not it is necessary to memorize the formulas, many students find that it gives them a boost of confidence that is very comforting. Memorizing the formulas from CPCU 540 can seem very daunting, but it’s totally doable if you have a system. Every day, focus on memorizing just one new formula, then practice writing down all the prior formulas you learned plus the new formula from that day. When it comes to test time, take a moment at the start of the exam to write down all the formulas you memorized onto your scratch paper, which should be easy to do because you have been practicing. By doing this, you will have a handy cheat sheet AND can free your mind to concentrate on the test.

Keep in mind that simply memorizing the formulas is not enough. You need to understand what the formula is intended to measure and how to interpret the results, so you should practice doing the calculations and be able to explain what the results are revealing.

4) Figure out if you are more comfortable with a financial calculator or using the present value/future value tables

One topic that we can guarantee will appear on your exam multiple times is the present value/future value calculations. The Institutes course covers how to do these calculations with a formula, but pretty no one uses those in the real world workplace or on the exam. You are far better off using a financial calculator or using present value and future tables, and most students will find that they clearly more comfortable with one method over the other.

Many students assume that using a financial calculator to tackle these problems is best, but that’s not necessarily true. There are a good number of students find that the tables are much easier to use than they thought, so don’t fall for the hype that a financial calculator is better. For a more detailed discussion on the pros and cons of the two methods, see our post here.

It is very important to master the present value and future value calculations because you will get multiple test questions relating to this topic on your exam. The nice thing about these calculations are that the right answer is very black and white, so you will immediately know that your calculation is probably right if the result you got is one of the possible answer choices.

5) Spend time to master the calculation-based questions

Students are often intimidated by exam questions that require them to apply a formula or otherwise calculate a number, but we believe that it is actually ideal to encounter these types of questions on the exam because you will know pretty much right away that you got it correct if the result you got is one of the answer choices. Knowing that you scored those points can help you move through the rest of the exam with a boost of confidence.

6) Don’t waste too much time on long questions or questions that you are stuck on

Every test question is worth only one point, no matter how simple or complex it is. If you find that you are spending a lot of time on one particular problem, you are better off guessing for now and using the option to flag the question so you can return to it later. You don’t want to spend so much time that you run out of time before you can get to all the other questions that might have been easier for you to score points on.

7) Put an answer for every question

You do not get minus points for getting a question wrong, so don’t leave any questions blank.

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8) Get as much practice as possible

The best way to ensure that you know how to apply the concepts you learning is to practice doing so, and practice quizzes are the perfect way to do this. 

Our online study program for CPCU 540 includes tons of practice questions, as well as a simulated exam that you can reattempt as many times as you want.

The Institutes’ online course also includes practice quizzes and a simulated exam, but you are only allowed one attempt at the simulated exam and you cannot review your answers once you close that browser tab. The Institutes used to have a Smart QuizMe app that also provided practice questions, but they have since removed the question banks for all the current CPCU & AINS courses from the app. At this time, we do not think that The Institutes will be updating their app to include new CPCU & AINS question banks, since The Institutes has not announced any specific plans to do so.

9) Aim to understand the practice questions and not just memorize them

The questions on the actual exam are not made up of the practice questions, so you cannot just rely on memorizing those answers for any practice quizzes and simulated exams you take. Read each explanation and re-review the material until you understand why you got a question wrong.

10) Don’t rely solely on The Institutes’ study materials

The Institutes’ way of explaining things is not necessarily the best way, so take advantage of other resources available to you. Some students don’t use The Institutes’ study materials at all and prefer to go with another study option, such as our comprehensive online study programs. We use plain English to explain all of the concepts, include helpful illustrations that help you see how a concept works, and show you how different elements of something relate to one another.

You can also turn to Google and YouTube to look for explanations and examples from other sources too.

11) Join the CPCU Candidates Facebook group

One of the best things you can do during your CPCU journey is to join the CPCU Candidates Facebook group, which is a wonderful community of current and former CPCU students. Here, you can get help with test questions that might be stumping you, ask for advice on propelling your insurance career, and find a healthy dose of moral support and motivation.