TEXAS PROPERTY AND CASUALTY EXAM
LATEST UPDATE 2026|2027|A
COMPREHENSIVE REVIEW OF 300 PRACTICE
QUESTIONS WITH ANSWERS RATIONALES|
PASS GUARANTEED.
Introduction
This practice question bank is designed to prepare you for the Texas General Lines
Property and Casualty insurance licensing exam. The exam is administered by
Pearson VUE on behalf of the Texas Department of Insurance (TDI) and consists
of 150 multiple-choice questions with a 2.5-hour time limit and a 70% passing
score requirement. The content covers General Insurance Concepts, Property
Insurance (including Texas-specific forms like the Texas Standard Policy and
TWIA), Casualty/Liability Insurance (including the Texas Financial Responsibility
Law and Workers' Compensation), and Texas Insurance Code regulations. Each
question below includes the correct answer and a rationale explaining the
underlying insurance principle. Questions are numbered sequentially with no
duplication, and answers are formatted as A, B, C, or D.
Section 1: General Insurance Concepts & Risk Management
1. Which of the following best defines "risk" in insurance terms?
A) The certainty of a financial loss
B) The uncertainty or chance of a loss occurring
C) The transfer of risk to an insurer
D) The actual financial loss sustained
Correct Answer: B
Rationale: Risk is defined as the uncertainty or chance of a loss occurring.
Insurance is a mechanism to transfer the financial consequences of pure risk.
Option A (certainty) is not risk; option C is "insurance"; option D is "loss".
,2. A situation where there is a chance of either loss or gain (e.g., gambling or
investing) is called:
A) Pure risk
B) Speculative risk
C) Particular risk
D) Fundamental risk
Correct Answer: B
Rationale: Speculative risk involves the possibility of either loss or gain.
Insurance typically covers pure risks (chance of loss or no loss, no gain). Pure risk
(A) involves only the chance of loss or no loss and is insurable. Gambling and
investing are examples of speculative risk, which is generally not insurable.
3. The process by which an insurer decides whether to accept or reject a risk
and at what premium is called:
A) Underwriting
B) Claims adjusting
C) Reinsurance
D) Loss control
Correct Answer: A
Rationale: Underwriting is the process of selecting, classifying, and pricing risks.
It involves evaluating the likelihood of loss and setting an appropriate premium.
Claims adjusting (B) is the process of settling claims. Reinsurance (C) is insurance
for insurers. Loss control (D) is risk reduction.
4. A "hazard" is defined as:
A) The cause of a potential loss
B) A condition that increases the chance or severity of a loss
,C) The financial consequence of a loss
D) The transfer of risk to another party
Correct Answer: B
Rationale: A hazard is a condition that increases the probability or severity of a
loss. A peril (A) is the cause of loss (e.g., fire, theft). A physical hazard (e.g., icy
sidewalk) is a condition; a moral hazard is a behavioral condition (dishonesty).
5. A "peril" in insurance is best defined as:
A) A condition that increases the likelihood of loss
B) The cause of loss
C) The financial consequence of a loss
D) The uncertainty of loss
Correct Answer: B
Rationale: A peril is the cause of loss, such as fire, theft, windstorm, or hail. A
hazard (A) is a condition that increases the chance of loss. Loss (C) is the financial
consequence. Risk (D) is the uncertainty of loss.
6. The tendency of those with greater-than-average risk of loss to seek
insurance is called:
A) Risk retention
B) Adverse selection
C) Risk transfer
D) Moral hazard
Correct Answer: B
Rationale: Adverse selection is the tendency of persons with a higher-than-average
chance of loss to seek insurance at standard rates. Underwriting helps protect
against adverse selection. Risk retention (A) is accepting risk. Risk transfer (C) is
shifting risk to an insurer. Moral hazard (D) is a behavioral condition that increases
loss potential.
, 7. Which of the following is NOT an insurable risk?
A) Fire damage to a home
B) Theft of a vehicle
C) A decline in stock market value
D) Liability for bodily injury
Correct Answer: C
Rationale: Only pure risks are insurable. Speculative risks (those offering the
chance of gain as well as loss) are not insurable. Stock market fluctuations are
speculative. Fire, theft, and liability are all pure risks.
8. A "moral hazard" is best described as:
A) A physical condition that increases loss
B) A dishonest tendency that increases the chance of loss
C) The cause of a loss
D) An indifference to loss due to insurance
Correct Answer: B
Rationale: A moral hazard involves dishonesty or character traits that increase the
chance of loss (e.g., filing a fraudulent claim). A morale hazard (D) is indifference
to loss because of the existence of insurance. A physical hazard (A) is a tangible
condition.
9. A "morale hazard" is best described as:
A) A dishonest tendency that increases loss
B) A physical condition that increases loss
C) An indifference to loss because of the existence of insurance
D) The cause of a loss
Correct Answer: C
LATEST UPDATE 2026|2027|A
COMPREHENSIVE REVIEW OF 300 PRACTICE
QUESTIONS WITH ANSWERS RATIONALES|
PASS GUARANTEED.
Introduction
This practice question bank is designed to prepare you for the Texas General Lines
Property and Casualty insurance licensing exam. The exam is administered by
Pearson VUE on behalf of the Texas Department of Insurance (TDI) and consists
of 150 multiple-choice questions with a 2.5-hour time limit and a 70% passing
score requirement. The content covers General Insurance Concepts, Property
Insurance (including Texas-specific forms like the Texas Standard Policy and
TWIA), Casualty/Liability Insurance (including the Texas Financial Responsibility
Law and Workers' Compensation), and Texas Insurance Code regulations. Each
question below includes the correct answer and a rationale explaining the
underlying insurance principle. Questions are numbered sequentially with no
duplication, and answers are formatted as A, B, C, or D.
Section 1: General Insurance Concepts & Risk Management
1. Which of the following best defines "risk" in insurance terms?
A) The certainty of a financial loss
B) The uncertainty or chance of a loss occurring
C) The transfer of risk to an insurer
D) The actual financial loss sustained
Correct Answer: B
Rationale: Risk is defined as the uncertainty or chance of a loss occurring.
Insurance is a mechanism to transfer the financial consequences of pure risk.
Option A (certainty) is not risk; option C is "insurance"; option D is "loss".
,2. A situation where there is a chance of either loss or gain (e.g., gambling or
investing) is called:
A) Pure risk
B) Speculative risk
C) Particular risk
D) Fundamental risk
Correct Answer: B
Rationale: Speculative risk involves the possibility of either loss or gain.
Insurance typically covers pure risks (chance of loss or no loss, no gain). Pure risk
(A) involves only the chance of loss or no loss and is insurable. Gambling and
investing are examples of speculative risk, which is generally not insurable.
3. The process by which an insurer decides whether to accept or reject a risk
and at what premium is called:
A) Underwriting
B) Claims adjusting
C) Reinsurance
D) Loss control
Correct Answer: A
Rationale: Underwriting is the process of selecting, classifying, and pricing risks.
It involves evaluating the likelihood of loss and setting an appropriate premium.
Claims adjusting (B) is the process of settling claims. Reinsurance (C) is insurance
for insurers. Loss control (D) is risk reduction.
4. A "hazard" is defined as:
A) The cause of a potential loss
B) A condition that increases the chance or severity of a loss
,C) The financial consequence of a loss
D) The transfer of risk to another party
Correct Answer: B
Rationale: A hazard is a condition that increases the probability or severity of a
loss. A peril (A) is the cause of loss (e.g., fire, theft). A physical hazard (e.g., icy
sidewalk) is a condition; a moral hazard is a behavioral condition (dishonesty).
5. A "peril" in insurance is best defined as:
A) A condition that increases the likelihood of loss
B) The cause of loss
C) The financial consequence of a loss
D) The uncertainty of loss
Correct Answer: B
Rationale: A peril is the cause of loss, such as fire, theft, windstorm, or hail. A
hazard (A) is a condition that increases the chance of loss. Loss (C) is the financial
consequence. Risk (D) is the uncertainty of loss.
6. The tendency of those with greater-than-average risk of loss to seek
insurance is called:
A) Risk retention
B) Adverse selection
C) Risk transfer
D) Moral hazard
Correct Answer: B
Rationale: Adverse selection is the tendency of persons with a higher-than-average
chance of loss to seek insurance at standard rates. Underwriting helps protect
against adverse selection. Risk retention (A) is accepting risk. Risk transfer (C) is
shifting risk to an insurer. Moral hazard (D) is a behavioral condition that increases
loss potential.
, 7. Which of the following is NOT an insurable risk?
A) Fire damage to a home
B) Theft of a vehicle
C) A decline in stock market value
D) Liability for bodily injury
Correct Answer: C
Rationale: Only pure risks are insurable. Speculative risks (those offering the
chance of gain as well as loss) are not insurable. Stock market fluctuations are
speculative. Fire, theft, and liability are all pure risks.
8. A "moral hazard" is best described as:
A) A physical condition that increases loss
B) A dishonest tendency that increases the chance of loss
C) The cause of a loss
D) An indifference to loss due to insurance
Correct Answer: B
Rationale: A moral hazard involves dishonesty or character traits that increase the
chance of loss (e.g., filing a fraudulent claim). A morale hazard (D) is indifference
to loss because of the existence of insurance. A physical hazard (A) is a tangible
condition.
9. A "morale hazard" is best described as:
A) A dishonest tendency that increases loss
B) A physical condition that increases loss
C) An indifference to loss because of the existence of insurance
D) The cause of a loss
Correct Answer: C
