Texas Insurance Practice Exam
Questions and Answers | Latest
Version | 2025/2026 | Correct & Verified
What does an insurance policy represent?
✔✔A legal contract between the insurer and insured outlining terms of coverage.
What is the principle of indemnity?
✔✔It ensures the insured is restored to the same financial position as before a loss, without
profit.
What is insurable interest?
✔✔A financial or emotional stake in the continued existence or safety of the insured item or
person.
What is a deductible?
✔✔The amount the insured must pay out-of-pocket before the insurer pays a claim.
What is a claim?
✔✔A request by the insured for payment or services covered under the policy.
What is subrogation in insurance?
✔✔The insurer’s right to recover funds from a third party responsible for the loss.
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,What is a policy limit?
✔✔The maximum amount an insurer will pay for a covered loss.
What is a binder in insurance?
✔✔Temporary coverage provided before a policy is formally issued.
What is the difference between actual cash value and replacement cost?
✔✔Actual cash value accounts for depreciation; replacement cost does not.
What is the purpose of underwriting?
✔✔To assess risk and determine whether the insurer will accept the applicant and at what
premium.
What is a hazard in insurance?
✔✔A condition or situation that increases the likelihood or severity of a loss.
What is moral hazard?
✔✔Risk that arises from an insured’s dishonest or reckless behavior.
What is a peril?
✔✔The cause of loss covered by an insurance policy, such as fire or theft.
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, What is an endorsement in insurance?
✔✔A written amendment to a policy that modifies terms or coverage.
What is the difference between an exclusion and a limitation?
✔✔An exclusion removes coverage for specific perils; a limitation restricts coverage amount or
conditions.
What is a waiver of premium rider?
✔✔A policy addition that allows premiums to be waived if the insured becomes disabled.
What is an accidental death benefit?
✔✔A policy provision that pays an additional sum if death results from an accident.
What is a grace period in insurance?
✔✔Additional time after a premium due date in which coverage remains in force.
What is misrepresentation in insurance?
✔✔Providing false or misleading information to the insurer during application.
What is a material fact?
✔✔Information that would influence the insurer’s decision to accept or price a risk.
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Questions and Answers | Latest
Version | 2025/2026 | Correct & Verified
What does an insurance policy represent?
✔✔A legal contract between the insurer and insured outlining terms of coverage.
What is the principle of indemnity?
✔✔It ensures the insured is restored to the same financial position as before a loss, without
profit.
What is insurable interest?
✔✔A financial or emotional stake in the continued existence or safety of the insured item or
person.
What is a deductible?
✔✔The amount the insured must pay out-of-pocket before the insurer pays a claim.
What is a claim?
✔✔A request by the insured for payment or services covered under the policy.
What is subrogation in insurance?
✔✔The insurer’s right to recover funds from a third party responsible for the loss.
1
,What is a policy limit?
✔✔The maximum amount an insurer will pay for a covered loss.
What is a binder in insurance?
✔✔Temporary coverage provided before a policy is formally issued.
What is the difference between actual cash value and replacement cost?
✔✔Actual cash value accounts for depreciation; replacement cost does not.
What is the purpose of underwriting?
✔✔To assess risk and determine whether the insurer will accept the applicant and at what
premium.
What is a hazard in insurance?
✔✔A condition or situation that increases the likelihood or severity of a loss.
What is moral hazard?
✔✔Risk that arises from an insured’s dishonest or reckless behavior.
What is a peril?
✔✔The cause of loss covered by an insurance policy, such as fire or theft.
2
, What is an endorsement in insurance?
✔✔A written amendment to a policy that modifies terms or coverage.
What is the difference between an exclusion and a limitation?
✔✔An exclusion removes coverage for specific perils; a limitation restricts coverage amount or
conditions.
What is a waiver of premium rider?
✔✔A policy addition that allows premiums to be waived if the insured becomes disabled.
What is an accidental death benefit?
✔✔A policy provision that pays an additional sum if death results from an accident.
What is a grace period in insurance?
✔✔Additional time after a premium due date in which coverage remains in force.
What is misrepresentation in insurance?
✔✔Providing false or misleading information to the insurer during application.
What is a material fact?
✔✔Information that would influence the insurer’s decision to accept or price a risk.
3
