Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
Pearson VUE Texas State Life & Health Insurance Exam
Edition | 150 Verified Questions & Correct Answers
Texas Licensing Exam | Pearson VUE Testing Format Alignment
Total Questions: 150 | Cognitive Mix: 30% Recall | 45% Application | 25% Analysis | Time: 180 minutes
Instructions: Select the ONE best answer for each question. Questions align with the Pearson VUE Texas Life & Health
Insurance content outline covering insurance fundamentals, life and health products, Texas Insurance Code and TDI
regulations, federal regulations, ethics, and tax treatment. Rationales reference the Texas Insurance Code, TDI rules, and
2026-2027 regulatory updates.
Section 1: Insurance Fundamentals and Contract Law (Q1 - Q20)
Risk Management, Contract Elements, Insurable Interest, Agency Law, & Policy Provisions
Q1. A Texas homeowner decides not to purchase flood insurance because their
property has never flooded in 20 years. Which risk management technique is the
homeowner applying?
A. Risk avoidance
B. Risk retention [CORRECT]
C. Risk transfer
D. Risk reduction
Correct Answer: B
Rationale: Risk retention occurs when an individual consciously accepts the financial consequences
of a potential loss rather than transferring it to an insurer. The homeowner is aware of the flood risk
but chooses to bear the financial impact personally. Risk avoidance (A) would mean eliminating the
exposure entirely (e.g., not owning the home). Risk transfer (C) is purchasing insurance. Risk
reduction (D) involves measures that lessen the chance or severity of loss (e.g., installing barriers).
Recognizing these distinctions is fundamental to Texas licensing examination content.
Q2. Which of the following is a defining characteristic of an insurance contract
whereby only one party is legally bound to perform after the other party has
performed?
A. Aleatory
B. Unilateral [CORRECT]
C. Conditional
D. Adhesion
Correct Answer: B
Rationale: A unilateral contract means only one party (the insurer) makes a legally enforceable
promise after the other party (the insured) performs - the insured pays the premium, and only then is
the insurer bound to pay claims. The insured has no legal obligation to continue paying premiums.
Aleatory (A) means the values exchanged are unequal (small premium for large potential benefit).
Conditional (C) means the insurer's obligation depends on certain conditions being met. Adhesion (D)
means the contract is drafted by one party and accepted as-is by the other, with ambiguities
construed against the drafter.
Q3. An insurance contract is prepared by the insurer, and the applicant must
accept it as-is without negotiation. Which characteristic does this describe, and
how does it affect contract interpretation in Texas courts?
Page 1 | 150 Questions Total
,Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
A. Aleatory; values exchanged must be equal
B. Unilateral; only the insurer makes enforceable promises
C. Contract of adhesion; ambiguities are construed against the insurer [CORRECT]
D. Conditional; the insurer pays only if conditions are met
Correct Answer: C
Rationale: A contract of adhesion is drafted by one party (the insurer) and presented on a
take-it-or-leave-it basis. Texas courts, like most jurisdictions, construe ambiguous policy language
against the insurer as the drafting party. This doctrine protects consumers from one-sided terms.
Aleatory (A) refers to unequal exchange of values. Unilateral (B) refers to only one party being bound
after performance. Conditional (D) means payment depends on stated conditions. Adhesion is central
to consumer protection in insurance contract law.
Q4. For a life insurance policy to be valid in Texas, when must insurable interest
exist?
A. At the time of policy issuance only [CORRECT]
B. At the time of the insured's death
C. At both policy issuance and the insured's death
D. Insurable interest is not required for life insurance
Correct Answer: A
Rationale: In life insurance, insurable interest must exist at the time of policy issuance (application)
but need not exist at the time of death. This allows individuals to maintain policies on former
spouses, business partners, or key persons after relationships end. This differs from property and
casualty insurance, where insurable interest must exist at BOTH policy inception and the time of
loss. Requiring insurable interest at issuance prevents wagering on human life and protects against
moral hazard.
Q5. A producer tells a client, "I'm sure the company will approve your policy
without a medical exam." This statement, if relied upon by the client, is an example
of which type of producer authority?
A. Express authority
B. Implied authority
C. Apparent authority [CORRECT]
D. No authority - this is a misrepresentation
Correct Answer: C
Rationale: Apparent authority exists when the insurer's actions or representations lead a reasonable
person to believe the producer has authority that they may not actually have. The producer's
statement creates an appearance of authority in the eyes of the client. Express authority (A) is
explicitly granted in writing (e.g., agency contract). Implied authority (B) is incidental to express
authority (e.g., completing applications). While the statement may also be a misrepresentation (D),
the question asks about the type of authority demonstrated, and apparent authority can bind the
insurer to third parties.
Q6. Which of the following is NOT a required element of a valid insurance
contract?
A. Offer and acceptance
B. Consideration
C. Competent parties
D. Written disclosure of commission [CORRECT]
Correct Answer: D
Page 2 | 150 Questions Total
,Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
Rationale: A valid insurance contract requires four elements: (1) offer and acceptance, (2)
consideration (premium payment by the insured and promise to pay claims by the insurer), (3)
competent parties (legal age and mental capacity), and (4) legal purpose (cannot insure against
illegal acts). Written commission disclosure (D) is a regulatory requirement in some contexts but is
NOT a required element of contract validity. The four common-law elements apply to all contracts,
including insurance, and form the foundation of contract law tested on the Texas exam.
Q7. An applicant submits a life insurance application with the first premium
payment. The insurer issues the policy as applied for. When is the contract
considered legally in force?
A. When the application is submitted
B. When the insurer issues the policy and the producer delivers it with the first premium
collected [CORRECT]
C. When the producer mails the policy to the applicant
D. When the medical exam is scheduled
Correct Answer: B
Rationale: The contract is in force when the insurer accepts the offer (issues the policy as applied
for) AND consideration is delivered (premium collected at policy delivery). If the application is
submitted with premium but the insurer issues the policy differently than applied for, a counteroffer
occurs requiring applicant acceptance. If no premium accompanies the application, the contract
becomes effective on the policy delivery date when the premium is collected. The conditional receipt
(if issued) may provide temporary coverage during underwriting.
Q8. An insurance contract in which the insurer agrees to pay only up to the actual
amount of loss suffered is described as which type of contract?
A. Valued contract
B. Contract of indemnity [CORRECT]
C. Aleatory contract
D. Unilateral contract
Correct Answer: B
Rationale: A contract of indemnity restores the insured to their pre-loss financial position - the
insurer pays only the actual amount of the loss, not more. Most property and health insurance
policies are contracts of indemnity. Life insurance, by contrast, is a VALUED contract (A) that pays a
stated benefit regardless of actual financial loss, because human life cannot be valued precisely.
Aleatory (C) refers to unequal exchange of values. Unilateral (D) refers to one party being bound.
Understanding this distinction is critical for product differentiation on the licensing exam.
Q9. A producer accepts a premium payment from a client and deposits it into their
personal bank account temporarily before forwarding it to the insurer. This
practice is called:
A. Rebating
B. Twisting
C. Commingling [CORRECT]
D. Churning
Correct Answer: C
Rationale: Commingling occurs when a producer mixes client or insurer funds with their personal
funds. Under the Texas Insurance Code, premiums collected by a producer are considered fiduciary
funds held in trust for the insurer and must be segregated from personal accounts. Commingling is
an unfair trade practice subject to license suspension, fines, and criminal penalties. Rebating (A) is
Page 3 | 150 Questions Total
, Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
returning part of the premium as an inducement. Twisting (B) is replacing policies through
misrepresentation. Churning (D) is replacing policies within the same company to generate
commissions. Fiduciary responsibility is a core ethical duty.
Q10. Which of the following best describes the principle of indemnity in insurance?
A. The insured profits from a loss
B. The insured is restored to the same financial position held before the loss, no more and no
less [CORRECT]
C. The insurer pays the policy limit regardless of actual loss
D. The insured can collect from multiple policies for the same loss
Correct Answer: B
Rationale: The principle of indemnity holds that insurance should restore the insured to their
pre-loss financial position without allowing profit from a loss. This principle deters moral hazard and
insurance fraud. It applies to property and health insurance but NOT to life insurance, which is a
valued contract. Subrogation and coinsurance are mechanisms supporting indemnity. Profiting from
loss (A) violates indemnity. Paying the policy limit regardless of loss (C) describes a valued contract.
Collecting from multiple policies (D) is typically prohibited by coordination of benefits provisions.
Q11. A producer's agency contract authorizes them to solicit applications, collect
premiums, and deliver policies. These specific powers are examples of:
A. Express authority [CORRECT]
B. Implied authority
C. Apparent authority
D. Assumed authority
Correct Answer: A
Rationale: Express authority is the specific authority granted to the producer in writing through the
agency contract. Examples include soliciting applications, collecting premiums, delivering policies,
and providing service to existing clients. Implied authority (B) is incidental authority not specifically
written but reasonably necessary to carry out express authority (e.g., answering client questions).
Apparent authority (C) is authority perceived by third parties based on the insurer's representations.
Assumed authority (D) is not a recognized type of producer authority in Texas insurance law.
Q12. Which of the following statements about the law of agency in Texas insurance
is correct?
A. Producers act as agents of the insured, not the insurer
B. Producers act as agents of the insurer for the purposes of receiving premiums and notices
[CORRECT]
C. Producers have no fiduciary responsibility to clients
D. A producer's knowledge cannot be imputed to the insurer
Correct Answer: B
Rationale: Under Texas Insurance Code Section 4001.052, a producer acts as the agent of the
insurer (not the insured) when soliciting, negotiating, or effectuating insurance contracts. Knowledge
acquired by the producer in the course of their duties IS imputed to the insurer - meaning the insurer
is deemed to know what the producer knows about the application. Producers also owe fiduciary
duties to clients, including handling premiums properly and acting in the client's best interest.
Agency law establishes the legal framework for producer-insurer relationships.
Q13. An applicant knowingly states on a life insurance application that they have
never been treated for high blood pressure, when in fact they take medication for it
Page 4 | 150 Questions Total
Pearson VUE Texas State Life & Health Insurance Exam
Edition | 150 Verified Questions & Correct Answers
Texas Licensing Exam | Pearson VUE Testing Format Alignment
Total Questions: 150 | Cognitive Mix: 30% Recall | 45% Application | 25% Analysis | Time: 180 minutes
Instructions: Select the ONE best answer for each question. Questions align with the Pearson VUE Texas Life & Health
Insurance content outline covering insurance fundamentals, life and health products, Texas Insurance Code and TDI
regulations, federal regulations, ethics, and tax treatment. Rationales reference the Texas Insurance Code, TDI rules, and
2026-2027 regulatory updates.
Section 1: Insurance Fundamentals and Contract Law (Q1 - Q20)
Risk Management, Contract Elements, Insurable Interest, Agency Law, & Policy Provisions
Q1. A Texas homeowner decides not to purchase flood insurance because their
property has never flooded in 20 years. Which risk management technique is the
homeowner applying?
A. Risk avoidance
B. Risk retention [CORRECT]
C. Risk transfer
D. Risk reduction
Correct Answer: B
Rationale: Risk retention occurs when an individual consciously accepts the financial consequences
of a potential loss rather than transferring it to an insurer. The homeowner is aware of the flood risk
but chooses to bear the financial impact personally. Risk avoidance (A) would mean eliminating the
exposure entirely (e.g., not owning the home). Risk transfer (C) is purchasing insurance. Risk
reduction (D) involves measures that lessen the chance or severity of loss (e.g., installing barriers).
Recognizing these distinctions is fundamental to Texas licensing examination content.
Q2. Which of the following is a defining characteristic of an insurance contract
whereby only one party is legally bound to perform after the other party has
performed?
A. Aleatory
B. Unilateral [CORRECT]
C. Conditional
D. Adhesion
Correct Answer: B
Rationale: A unilateral contract means only one party (the insurer) makes a legally enforceable
promise after the other party (the insured) performs - the insured pays the premium, and only then is
the insurer bound to pay claims. The insured has no legal obligation to continue paying premiums.
Aleatory (A) means the values exchanged are unequal (small premium for large potential benefit).
Conditional (C) means the insurer's obligation depends on certain conditions being met. Adhesion (D)
means the contract is drafted by one party and accepted as-is by the other, with ambiguities
construed against the drafter.
Q3. An insurance contract is prepared by the insurer, and the applicant must
accept it as-is without negotiation. Which characteristic does this describe, and
how does it affect contract interpretation in Texas courts?
Page 1 | 150 Questions Total
,Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
A. Aleatory; values exchanged must be equal
B. Unilateral; only the insurer makes enforceable promises
C. Contract of adhesion; ambiguities are construed against the insurer [CORRECT]
D. Conditional; the insurer pays only if conditions are met
Correct Answer: C
Rationale: A contract of adhesion is drafted by one party (the insurer) and presented on a
take-it-or-leave-it basis. Texas courts, like most jurisdictions, construe ambiguous policy language
against the insurer as the drafting party. This doctrine protects consumers from one-sided terms.
Aleatory (A) refers to unequal exchange of values. Unilateral (B) refers to only one party being bound
after performance. Conditional (D) means payment depends on stated conditions. Adhesion is central
to consumer protection in insurance contract law.
Q4. For a life insurance policy to be valid in Texas, when must insurable interest
exist?
A. At the time of policy issuance only [CORRECT]
B. At the time of the insured's death
C. At both policy issuance and the insured's death
D. Insurable interest is not required for life insurance
Correct Answer: A
Rationale: In life insurance, insurable interest must exist at the time of policy issuance (application)
but need not exist at the time of death. This allows individuals to maintain policies on former
spouses, business partners, or key persons after relationships end. This differs from property and
casualty insurance, where insurable interest must exist at BOTH policy inception and the time of
loss. Requiring insurable interest at issuance prevents wagering on human life and protects against
moral hazard.
Q5. A producer tells a client, "I'm sure the company will approve your policy
without a medical exam." This statement, if relied upon by the client, is an example
of which type of producer authority?
A. Express authority
B. Implied authority
C. Apparent authority [CORRECT]
D. No authority - this is a misrepresentation
Correct Answer: C
Rationale: Apparent authority exists when the insurer's actions or representations lead a reasonable
person to believe the producer has authority that they may not actually have. The producer's
statement creates an appearance of authority in the eyes of the client. Express authority (A) is
explicitly granted in writing (e.g., agency contract). Implied authority (B) is incidental to express
authority (e.g., completing applications). While the statement may also be a misrepresentation (D),
the question asks about the type of authority demonstrated, and apparent authority can bind the
insurer to third parties.
Q6. Which of the following is NOT a required element of a valid insurance
contract?
A. Offer and acceptance
B. Consideration
C. Competent parties
D. Written disclosure of commission [CORRECT]
Correct Answer: D
Page 2 | 150 Questions Total
,Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
Rationale: A valid insurance contract requires four elements: (1) offer and acceptance, (2)
consideration (premium payment by the insured and promise to pay claims by the insurer), (3)
competent parties (legal age and mental capacity), and (4) legal purpose (cannot insure against
illegal acts). Written commission disclosure (D) is a regulatory requirement in some contexts but is
NOT a required element of contract validity. The four common-law elements apply to all contracts,
including insurance, and form the foundation of contract law tested on the Texas exam.
Q7. An applicant submits a life insurance application with the first premium
payment. The insurer issues the policy as applied for. When is the contract
considered legally in force?
A. When the application is submitted
B. When the insurer issues the policy and the producer delivers it with the first premium
collected [CORRECT]
C. When the producer mails the policy to the applicant
D. When the medical exam is scheduled
Correct Answer: B
Rationale: The contract is in force when the insurer accepts the offer (issues the policy as applied
for) AND consideration is delivered (premium collected at policy delivery). If the application is
submitted with premium but the insurer issues the policy differently than applied for, a counteroffer
occurs requiring applicant acceptance. If no premium accompanies the application, the contract
becomes effective on the policy delivery date when the premium is collected. The conditional receipt
(if issued) may provide temporary coverage during underwriting.
Q8. An insurance contract in which the insurer agrees to pay only up to the actual
amount of loss suffered is described as which type of contract?
A. Valued contract
B. Contract of indemnity [CORRECT]
C. Aleatory contract
D. Unilateral contract
Correct Answer: B
Rationale: A contract of indemnity restores the insured to their pre-loss financial position - the
insurer pays only the actual amount of the loss, not more. Most property and health insurance
policies are contracts of indemnity. Life insurance, by contrast, is a VALUED contract (A) that pays a
stated benefit regardless of actual financial loss, because human life cannot be valued precisely.
Aleatory (C) refers to unequal exchange of values. Unilateral (D) refers to one party being bound.
Understanding this distinction is critical for product differentiation on the licensing exam.
Q9. A producer accepts a premium payment from a client and deposits it into their
personal bank account temporarily before forwarding it to the insurer. This
practice is called:
A. Rebating
B. Twisting
C. Commingling [CORRECT]
D. Churning
Correct Answer: C
Rationale: Commingling occurs when a producer mixes client or insurer funds with their personal
funds. Under the Texas Insurance Code, premiums collected by a producer are considered fiduciary
funds held in trust for the insurer and must be segregated from personal accounts. Commingling is
an unfair trade practice subject to license suspension, fines, and criminal penalties. Rebating (A) is
Page 3 | 150 Questions Total
, Pearson VUE Texas Life & Health Insurance Exam - 2026/2027 Texas Licensing Exam | 150 Verified Questions
returning part of the premium as an inducement. Twisting (B) is replacing policies through
misrepresentation. Churning (D) is replacing policies within the same company to generate
commissions. Fiduciary responsibility is a core ethical duty.
Q10. Which of the following best describes the principle of indemnity in insurance?
A. The insured profits from a loss
B. The insured is restored to the same financial position held before the loss, no more and no
less [CORRECT]
C. The insurer pays the policy limit regardless of actual loss
D. The insured can collect from multiple policies for the same loss
Correct Answer: B
Rationale: The principle of indemnity holds that insurance should restore the insured to their
pre-loss financial position without allowing profit from a loss. This principle deters moral hazard and
insurance fraud. It applies to property and health insurance but NOT to life insurance, which is a
valued contract. Subrogation and coinsurance are mechanisms supporting indemnity. Profiting from
loss (A) violates indemnity. Paying the policy limit regardless of loss (C) describes a valued contract.
Collecting from multiple policies (D) is typically prohibited by coordination of benefits provisions.
Q11. A producer's agency contract authorizes them to solicit applications, collect
premiums, and deliver policies. These specific powers are examples of:
A. Express authority [CORRECT]
B. Implied authority
C. Apparent authority
D. Assumed authority
Correct Answer: A
Rationale: Express authority is the specific authority granted to the producer in writing through the
agency contract. Examples include soliciting applications, collecting premiums, delivering policies,
and providing service to existing clients. Implied authority (B) is incidental authority not specifically
written but reasonably necessary to carry out express authority (e.g., answering client questions).
Apparent authority (C) is authority perceived by third parties based on the insurer's representations.
Assumed authority (D) is not a recognized type of producer authority in Texas insurance law.
Q12. Which of the following statements about the law of agency in Texas insurance
is correct?
A. Producers act as agents of the insured, not the insurer
B. Producers act as agents of the insurer for the purposes of receiving premiums and notices
[CORRECT]
C. Producers have no fiduciary responsibility to clients
D. A producer's knowledge cannot be imputed to the insurer
Correct Answer: B
Rationale: Under Texas Insurance Code Section 4001.052, a producer acts as the agent of the
insurer (not the insured) when soliciting, negotiating, or effectuating insurance contracts. Knowledge
acquired by the producer in the course of their duties IS imputed to the insurer - meaning the insurer
is deemed to know what the producer knows about the application. Producers also owe fiduciary
duties to clients, including handling premiums properly and acting in the client's best interest.
Agency law establishes the legal framework for producer-insurer relationships.
Q13. An applicant knowingly states on a life insurance application that they have
never been treated for high blood pressure, when in fact they take medication for it
Page 4 | 150 Questions Total
