InsTX-PersPC55 Personal Lines Property &
Casualty (English) Exam Questions and
Answers with complete
Page 1 of 162
,Question 1
All of the following properties can be insured under an unendorsed homeowners
policy EXCEPT
A) a duplex that is owner-occupied
B) a mobile home that is owner-occupied
C) a home under construction that the owner intends to occupy
D) a townhouse that is owner-occupied
Correct Answer
B) a mobile home that is owner-occupied
Explanation: All of the types of property described can be insured under a
homeowners policy, but only mobile homes require a special endorsement.
Reference: 7.3.2 in the License Exam Manual
Domain 1: Insurance Concepts and Practices
1. Which of the following best describes the principle of indemnity?
A. The insured must have a financial interest in the property at the time of
loss.
B. The insured should not profit from a loss, but be restored to the same
financial position as before the loss.
C. The insurer has the right to pursue a third party who caused the loss.
D. The contract is interpreted in favor of the insured.
Correct Answer: B
Rationale: The principle of indemnity ensures that insurance is for
compensation, not profit. The insured is restored to their approximate
financial position prior to the loss, no better and no worse.
2. A contract where only one party makes a legally enforceable promise is
known as a(n):
A. Bilateral contract
B. Aleatory contract
C. Unilateral contract
D. Contract of adhesion
Correct Answer: C
Rationale: An insurance policy is a unilateral contract because only the
insurer makes a legally enforceable promise to pay covered claims. The
insured pays the premium but is not legally forced to keep the policy.
Page 2 of 162
,3. What is the difference between a peril and a hazard?
A. A peril is the cause of a loss; a hazard is a condition that increases the
chance of a loss.
B. A hazard is the cause of a loss; a peril is a condition that increases the
chance of a loss.
C. They are synonymous terms in insurance.
D. A peril is always natural; a hazard is always human-made.
Correct Answer: A
Rationale: A peril is the actual cause of the loss (e.g., fire, windstorm). A
hazard is a condition or situation that increases the probability or severity of
that loss (e.g., storing gasoline near a furnace).
4. An applicant intentionally fails to disclose a material fact on an
insurance application. This is an example of:
A. Misrepresentation
B. Concealment
C. Warranty
D. Waiver
Correct Answer: B
Rationale: Concealment is the intentional withholding of a material fact that
would affect the insurer's decision to issue the policy or the terms of the
policy. Misrepresentation is an unintentional or innocent false statement.
5. The legal right of an insurer to pursue a third party that caused an
insurance loss to the insured is called:
A. Subrogation
B. Indemnity
C. Salvage
D. Arbitration
Correct Answer: A
Rationale: Subrogation allows the insurer, after paying a claim, to step into
the shoes of the insured to recover the amount paid from the negligent third
party who caused the loss.
6. An insurance policy is considered a "contract of adhesion." What does
this mean?
A. Both parties negotiate the terms equally.
B. The contract is prepared by one party (the insurer), and the other party
(the insured) must accept it as is or reject it.
C. The contract is void if the insured does not read it.
D. The contract requires a physical attachment to the property.
Correct Answer: B
Page 3 of 162
, Rationale: A contract of adhesion is a "take it or leave it" agreement. Because
the insured does not draft the policy, any ambiguities in the policy language
are generally interpreted by courts in favor of the insured.
7. Which of the following is required for a risk to be considered
"insurable"?
A. The loss must be catastrophic to the insurer.
B. The loss must be intentional.
C. The loss must be definite, measurable, and accidental.
D. The premium must be higher than the potential loss.
Correct Answer: C
Rationale: For a risk to be insurable, the loss must be fortuitous (accidental),
definite in time and place, measurable in monetary terms, and not
catastrophic to the insurer's entire portfolio.
8. A temporary agreement providing immediate insurance coverage
before the formal policy is issued is called a:
A. Endorsement
B. Binder
C. Rider
D. Declaration
Correct Answer: B
Rationale: A binder is a temporary, written agreement that provides
immediate coverage until the formal policy is issued or the application is
rejected.
Domain 2: Texas Laws and Regulations
9. What is the standard grace period for a Personal Auto Policy in Texas?
A. 10 days
B. 15 days
C. 30 days
D. 60 days
Correct Answer: B
Rationale: Texas law mandates a minimum 15-day grace period for personal
auto insurance policies, during which coverage remains in force even if the
premium has not been paid.
10. What is the standard grace period for a Homeowners Policy in Texas?
A. 10 days
Page 4 of 162
Casualty (English) Exam Questions and
Answers with complete
Page 1 of 162
,Question 1
All of the following properties can be insured under an unendorsed homeowners
policy EXCEPT
A) a duplex that is owner-occupied
B) a mobile home that is owner-occupied
C) a home under construction that the owner intends to occupy
D) a townhouse that is owner-occupied
Correct Answer
B) a mobile home that is owner-occupied
Explanation: All of the types of property described can be insured under a
homeowners policy, but only mobile homes require a special endorsement.
Reference: 7.3.2 in the License Exam Manual
Domain 1: Insurance Concepts and Practices
1. Which of the following best describes the principle of indemnity?
A. The insured must have a financial interest in the property at the time of
loss.
B. The insured should not profit from a loss, but be restored to the same
financial position as before the loss.
C. The insurer has the right to pursue a third party who caused the loss.
D. The contract is interpreted in favor of the insured.
Correct Answer: B
Rationale: The principle of indemnity ensures that insurance is for
compensation, not profit. The insured is restored to their approximate
financial position prior to the loss, no better and no worse.
2. A contract where only one party makes a legally enforceable promise is
known as a(n):
A. Bilateral contract
B. Aleatory contract
C. Unilateral contract
D. Contract of adhesion
Correct Answer: C
Rationale: An insurance policy is a unilateral contract because only the
insurer makes a legally enforceable promise to pay covered claims. The
insured pays the premium but is not legally forced to keep the policy.
Page 2 of 162
,3. What is the difference between a peril and a hazard?
A. A peril is the cause of a loss; a hazard is a condition that increases the
chance of a loss.
B. A hazard is the cause of a loss; a peril is a condition that increases the
chance of a loss.
C. They are synonymous terms in insurance.
D. A peril is always natural; a hazard is always human-made.
Correct Answer: A
Rationale: A peril is the actual cause of the loss (e.g., fire, windstorm). A
hazard is a condition or situation that increases the probability or severity of
that loss (e.g., storing gasoline near a furnace).
4. An applicant intentionally fails to disclose a material fact on an
insurance application. This is an example of:
A. Misrepresentation
B. Concealment
C. Warranty
D. Waiver
Correct Answer: B
Rationale: Concealment is the intentional withholding of a material fact that
would affect the insurer's decision to issue the policy or the terms of the
policy. Misrepresentation is an unintentional or innocent false statement.
5. The legal right of an insurer to pursue a third party that caused an
insurance loss to the insured is called:
A. Subrogation
B. Indemnity
C. Salvage
D. Arbitration
Correct Answer: A
Rationale: Subrogation allows the insurer, after paying a claim, to step into
the shoes of the insured to recover the amount paid from the negligent third
party who caused the loss.
6. An insurance policy is considered a "contract of adhesion." What does
this mean?
A. Both parties negotiate the terms equally.
B. The contract is prepared by one party (the insurer), and the other party
(the insured) must accept it as is or reject it.
C. The contract is void if the insured does not read it.
D. The contract requires a physical attachment to the property.
Correct Answer: B
Page 3 of 162
, Rationale: A contract of adhesion is a "take it or leave it" agreement. Because
the insured does not draft the policy, any ambiguities in the policy language
are generally interpreted by courts in favor of the insured.
7. Which of the following is required for a risk to be considered
"insurable"?
A. The loss must be catastrophic to the insurer.
B. The loss must be intentional.
C. The loss must be definite, measurable, and accidental.
D. The premium must be higher than the potential loss.
Correct Answer: C
Rationale: For a risk to be insurable, the loss must be fortuitous (accidental),
definite in time and place, measurable in monetary terms, and not
catastrophic to the insurer's entire portfolio.
8. A temporary agreement providing immediate insurance coverage
before the formal policy is issued is called a:
A. Endorsement
B. Binder
C. Rider
D. Declaration
Correct Answer: B
Rationale: A binder is a temporary, written agreement that provides
immediate coverage until the formal policy is issued or the application is
rejected.
Domain 2: Texas Laws and Regulations
9. What is the standard grace period for a Personal Auto Policy in Texas?
A. 10 days
B. 15 days
C. 30 days
D. 60 days
Correct Answer: B
Rationale: Texas law mandates a minimum 15-day grace period for personal
auto insurance policies, during which coverage remains in force even if the
premium has not been paid.
10. What is the standard grace period for a Homeowners Policy in Texas?
A. 10 days
Page 4 of 162
