Texas Property & Casualty
Insurance Exam
Comprehensive Questions with
Verified Answers Graded A+
A condition or situation that presents a possibility of loss is a (an): - Answer: exposure
The purpose of insurance is to: - Answer: transfer risk
Which hazard can be described as a careless attitude or general indifference on the part of the
insured toward the occurrence of loss? - Answer: morale
Which risk is insurable? - Answer: pure
With regard to insurance, risk can be defined as: - Answer: uncertainty regarding loss
Treating risk by purchasing insurance is an example of what type of risk management? - Answer:
transfer
Robert and Carolyn live in a busy city and decide that not owning a car is the solution to not
experience having a car stolen. What method describes this philosophy? - Answer: avoidance
Dishonesty on the part of an insured is an example of what? - Answer: a moral hazard
,What is an example of reduction as a method of handling risk? - Answer: Installing a burglar
alarm
Driving too fast and not wearing a seat belt are examples of? - Answer: morale hazard
The risk that involves the chance of both loss and gain is? - Answer: speculative risk
Self-insurance is an example of what kind of risk treatment? - Answer: Retention
If John's father transfers ownership of a house to John, can John buy insurance? - Answer: Yes
because he has an insurable interest.
Fire would be an example of a what? - Answer: peril
What is the actual cause of a loss? - Answer: peril
What kind of risk is the stock market? - Answer: speculative risk
A ____ is a condition that increases the chance of loss. - Answer: hazard
Faulty wiring causes a fire that destroys a building. The faulty wiring is considered to be a(n): -
Answer: hazard
A chance, possibility, or uncertainty of loss is known as? - Answer: risk
Examples of perils are_____? - Answer: fire, wind and lightning
,Indemnity insurance will _____? - Answer: restores insured to pre-loss condition
The types of hazards are_____? - Answer: moral, morale, and physical
________ is when people with a greater than average exposure to loss to purchase insurance. -
Answer: Adverse selection
Methods of handling risk are avoidance, reduction, retention, transfer and _____. - Answer:
Sharing (ARRTS)
Elements of insurable risk are calculable, affordable, non-catastrophic, homogenous, accidental
and _____. - Answer: Measurable (CANHAM)
Myron, who is 16, signs a contract to lease a car. This would probably not be considered a valid
contract under the law because _____. - Answer: He is not competent at 16.
Ben bought an automobile four years ago for $15,000. Today it is worth $6,000. According to
the principle of indemnity, how much should Ben receive if the car is totally demolished? -
Answer: $6,000
Harry Arne and his cousin each own 50% of a $160,000 duplex. Suppose Harry purchases
$160,000 of insurance on the home. If it burns to the ground, how much would Harry collect? -
Answer: $80,000
Under a unilateral contract, which parties are legally bound to perform under the contract? -
Answer: Insurer only
, Which part of an insurance policy describes the responsibilities and obligations of both the
insurance company and the insured under the policy? - Answer: Conditions
The insuring agreement section of a policy describes the ____ you are insured against. - Answer:
perils
The elements of a valid contract are legal purpose, consideration, competent parties, and
_____. - Answer: Offer and acceptance
Both parties rely on statements made to each other when writing a contract. This is known as? -
Answer: Utmost good faith
The limits of liability are found in which of the following sections of a casualty policy? - Answer:
Declarations
An insurance company issued a homeowners policy that included ambiguous language
regarding how a loss was settled. The insured sued the insurance company and won. The judge
stated that due to the ambiguous language in the contract the decision must be made in favor
of the insured. The judge was basing this decision on which of the following types of insurance
contract? - Answer: Contract of adhesion
A policy may be amended only with a(n): - Answer: endorsement
The procedure for resolving a disagreement between an insured and an insurance company
about a loss is described in which of the following parts of an insurance policy? - Answer:
Conditions
Who does a personal contract protect? - Answer: The individual who owns the property.
Insurance Exam
Comprehensive Questions with
Verified Answers Graded A+
A condition or situation that presents a possibility of loss is a (an): - Answer: exposure
The purpose of insurance is to: - Answer: transfer risk
Which hazard can be described as a careless attitude or general indifference on the part of the
insured toward the occurrence of loss? - Answer: morale
Which risk is insurable? - Answer: pure
With regard to insurance, risk can be defined as: - Answer: uncertainty regarding loss
Treating risk by purchasing insurance is an example of what type of risk management? - Answer:
transfer
Robert and Carolyn live in a busy city and decide that not owning a car is the solution to not
experience having a car stolen. What method describes this philosophy? - Answer: avoidance
Dishonesty on the part of an insured is an example of what? - Answer: a moral hazard
,What is an example of reduction as a method of handling risk? - Answer: Installing a burglar
alarm
Driving too fast and not wearing a seat belt are examples of? - Answer: morale hazard
The risk that involves the chance of both loss and gain is? - Answer: speculative risk
Self-insurance is an example of what kind of risk treatment? - Answer: Retention
If John's father transfers ownership of a house to John, can John buy insurance? - Answer: Yes
because he has an insurable interest.
Fire would be an example of a what? - Answer: peril
What is the actual cause of a loss? - Answer: peril
What kind of risk is the stock market? - Answer: speculative risk
A ____ is a condition that increases the chance of loss. - Answer: hazard
Faulty wiring causes a fire that destroys a building. The faulty wiring is considered to be a(n): -
Answer: hazard
A chance, possibility, or uncertainty of loss is known as? - Answer: risk
Examples of perils are_____? - Answer: fire, wind and lightning
,Indemnity insurance will _____? - Answer: restores insured to pre-loss condition
The types of hazards are_____? - Answer: moral, morale, and physical
________ is when people with a greater than average exposure to loss to purchase insurance. -
Answer: Adverse selection
Methods of handling risk are avoidance, reduction, retention, transfer and _____. - Answer:
Sharing (ARRTS)
Elements of insurable risk are calculable, affordable, non-catastrophic, homogenous, accidental
and _____. - Answer: Measurable (CANHAM)
Myron, who is 16, signs a contract to lease a car. This would probably not be considered a valid
contract under the law because _____. - Answer: He is not competent at 16.
Ben bought an automobile four years ago for $15,000. Today it is worth $6,000. According to
the principle of indemnity, how much should Ben receive if the car is totally demolished? -
Answer: $6,000
Harry Arne and his cousin each own 50% of a $160,000 duplex. Suppose Harry purchases
$160,000 of insurance on the home. If it burns to the ground, how much would Harry collect? -
Answer: $80,000
Under a unilateral contract, which parties are legally bound to perform under the contract? -
Answer: Insurer only
, Which part of an insurance policy describes the responsibilities and obligations of both the
insurance company and the insured under the policy? - Answer: Conditions
The insuring agreement section of a policy describes the ____ you are insured against. - Answer:
perils
The elements of a valid contract are legal purpose, consideration, competent parties, and
_____. - Answer: Offer and acceptance
Both parties rely on statements made to each other when writing a contract. This is known as? -
Answer: Utmost good faith
The limits of liability are found in which of the following sections of a casualty policy? - Answer:
Declarations
An insurance company issued a homeowners policy that included ambiguous language
regarding how a loss was settled. The insured sued the insurance company and won. The judge
stated that due to the ambiguous language in the contract the decision must be made in favor
of the insured. The judge was basing this decision on which of the following types of insurance
contract? - Answer: Contract of adhesion
A policy may be amended only with a(n): - Answer: endorsement
The procedure for resolving a disagreement between an insured and an insurance company
about a loss is described in which of the following parts of an insurance policy? - Answer:
Conditions
Who does a personal contract protect? - Answer: The individual who owns the property.
