TX General Lines Property and Casualty
Agent Exam Prep Questions Answered
Correctly (Qs) 2026 update
risk - CORRECT ANSWERS "chance of loss" to insured person, property, or activity
this uncertainty of loss is the basic reason for insurance's existence
loss - CORRECT ANSWERS unwelcomed/ unplanned reduction in economic value
role of insurance is to indemnify the insured for the financial value of an insured loss
direct loss- immediate result of event caused by covered peril
indirect loss- remote ramification than direct loss, but still results of loss from covered peril
ex) If a home is severely damaged by fire, the damage to the building is considered a direct loss. Because
the home is temporarily uninhabitable the home owner will incur additional living expenses, over and
above the home owner's normal expenses, until the house has been repaired. These additional living
expenses are an indirect loss that follows the direct loss of the home.
exposure - CORRECT ANSWERS state of being subject to possible loss
ex) motorist exposed to risk of being involved in auto accident that could result in damage to the car,
serious injury, lawsuits, or even death
- measured by assigning exposure units (influenced by insured item's market value and risk factors
facing it)
,- more exposure units, higher premium
- exposure: total extent of risk an insurer faces with an insured
ex) insurance company that sells workers compensation insurance faces increased exposure as an
insured business's workforce increases
peril - CORRECT ANSWERS destructive event that insurance guards against
ex) covered perils: fire, explosion, windstorm, flood, theft, collision (insurance policy provides financial
protection against these losses)
insurance policy provides financial protection against losses caused by specified perils --> covered perils
hazard - CORRECT ANSWERS increases likely occurrence of peril or severity of a loss
moral hazard: traits of individual that increase chance of loss
- ex) alcoholism, smoking, bad credit
morale hazard: individual tendencies that arise from state of mind, attitude, or indifference to loss
-ex) driving recklessly
physical hazard: physical conditions that increase chance of loss
-ex) dangerous conditions/activities, diseases, unsanitary conditions, congested traffic, unguarded
premises, etc.
,legal hazards: legal or regulatory environment characteristics that affect an insurer's ability to provide
insurance at a premium that fairly reflects loss exposures
risk management - CORRECT ANSWERS process of dealing with risk
- risk avoidance
- risk control
- risk sharing
- risk retention
- risk transfer
risk avoidance - CORRECT ANSWERS avoid risk
ex) not owning car avoids risk of car being stolen or damaged
risk control - CORRECT ANSWERS if risk can't be avoided, it can be controlled
risk prevention: reduce likelihood loss will occur
ex) shoveling snow prevents slip and fall
risk reduction: reduce severity of loss that does occur
ex) fire extinguishers doesn't prevent fire from starting, but limits fire damage if it does occur
risk sharing - CORRECT ANSWERS groups share financial burden of loss suffered by members
of group
, ex) pooling: groups organize formal arrangement by which they share one another's losses through
pooled resources
risk retention - CORRECT ANSWERS accepting risk and dealing with a loss using personal
funds
- better for small risks
ex) deductibles: shift small losses to policyowner --. insurance covers more serious losses
involved when a business sets up a formal self-insurance program, which puts aside funds to pay for any
losses that occur
risk transfer - CORRECT ANSWERS in exchange for paying a premium, individual/business
transfer risk of loss to insurance company through insurance policy --> loss occurs, insurer will
compensate insured
basis for modern insurance
insurable risk - CORRECT ANSWERS 1. must be definite (time, cause, location)
2. value of insured item must be measurable
3. must be accidental
4. not covered due to catastrophic events (war, earthquake, etc.)
5. risk must be part of large group of similar risks that insurance company can use to predict future
losses
6. only pure risks are insurable (not speculative risks)
Agent Exam Prep Questions Answered
Correctly (Qs) 2026 update
risk - CORRECT ANSWERS "chance of loss" to insured person, property, or activity
this uncertainty of loss is the basic reason for insurance's existence
loss - CORRECT ANSWERS unwelcomed/ unplanned reduction in economic value
role of insurance is to indemnify the insured for the financial value of an insured loss
direct loss- immediate result of event caused by covered peril
indirect loss- remote ramification than direct loss, but still results of loss from covered peril
ex) If a home is severely damaged by fire, the damage to the building is considered a direct loss. Because
the home is temporarily uninhabitable the home owner will incur additional living expenses, over and
above the home owner's normal expenses, until the house has been repaired. These additional living
expenses are an indirect loss that follows the direct loss of the home.
exposure - CORRECT ANSWERS state of being subject to possible loss
ex) motorist exposed to risk of being involved in auto accident that could result in damage to the car,
serious injury, lawsuits, or even death
- measured by assigning exposure units (influenced by insured item's market value and risk factors
facing it)
,- more exposure units, higher premium
- exposure: total extent of risk an insurer faces with an insured
ex) insurance company that sells workers compensation insurance faces increased exposure as an
insured business's workforce increases
peril - CORRECT ANSWERS destructive event that insurance guards against
ex) covered perils: fire, explosion, windstorm, flood, theft, collision (insurance policy provides financial
protection against these losses)
insurance policy provides financial protection against losses caused by specified perils --> covered perils
hazard - CORRECT ANSWERS increases likely occurrence of peril or severity of a loss
moral hazard: traits of individual that increase chance of loss
- ex) alcoholism, smoking, bad credit
morale hazard: individual tendencies that arise from state of mind, attitude, or indifference to loss
-ex) driving recklessly
physical hazard: physical conditions that increase chance of loss
-ex) dangerous conditions/activities, diseases, unsanitary conditions, congested traffic, unguarded
premises, etc.
,legal hazards: legal or regulatory environment characteristics that affect an insurer's ability to provide
insurance at a premium that fairly reflects loss exposures
risk management - CORRECT ANSWERS process of dealing with risk
- risk avoidance
- risk control
- risk sharing
- risk retention
- risk transfer
risk avoidance - CORRECT ANSWERS avoid risk
ex) not owning car avoids risk of car being stolen or damaged
risk control - CORRECT ANSWERS if risk can't be avoided, it can be controlled
risk prevention: reduce likelihood loss will occur
ex) shoveling snow prevents slip and fall
risk reduction: reduce severity of loss that does occur
ex) fire extinguishers doesn't prevent fire from starting, but limits fire damage if it does occur
risk sharing - CORRECT ANSWERS groups share financial burden of loss suffered by members
of group
, ex) pooling: groups organize formal arrangement by which they share one another's losses through
pooled resources
risk retention - CORRECT ANSWERS accepting risk and dealing with a loss using personal
funds
- better for small risks
ex) deductibles: shift small losses to policyowner --. insurance covers more serious losses
involved when a business sets up a formal self-insurance program, which puts aside funds to pay for any
losses that occur
risk transfer - CORRECT ANSWERS in exchange for paying a premium, individual/business
transfer risk of loss to insurance company through insurance policy --> loss occurs, insurer will
compensate insured
basis for modern insurance
insurable risk - CORRECT ANSWERS 1. must be definite (time, cause, location)
2. value of insured item must be measurable
3. must be accidental
4. not covered due to catastrophic events (war, earthquake, etc.)
5. risk must be part of large group of similar risks that insurance company can use to predict future
losses
6. only pure risks are insurable (not speculative risks)
