Texas All Lines Adjuster Exam Practice
Questions and Answers (A+ Score)
• principle of indemnity -✓✓when a loss occurs, an individual should be restored
to the approximate financial condition he was in before the loss, no more and no
less
• Q1: How can insurance companies afford to pay for an individual's catastrophic
loss? -✓✓
• Q1: The purpose of the principle of indemnity: -✓✓prevents an insured from
profiting from a loss
• Q1: Which of the following best defines premium? -✓✓the fee paid by the
insured in exchange for the insurance policy
• Q1: What best describes insurance? -✓✓an economic device used to protect
against the risk of unforeseen and extraordinary financial loss
• Q1: Mark incurred $8000 damage to his car in an accident. He received $8000
from his insurance company and $4000 from the other driver. By receiving profit
from his loss, Mark could be in violation of: -✓✓the principle of indemnity
he should be in the same financial condition. no better, no worse
• indemnification may include payment for: -✓✓repairs to property
reimbursement for additional living expenses
rental cars, hotels
costs directly associated with a loss, as allowed under the policy
• legal contract/insurance policy is: -✓✓contract to provide financial protection for
a fee
legally binding because it meets the 4 requirements of a legal contract
,• What are the 4 requirements of a legal contract? -✓✓agreement (offer and
acceptance)
consideration
competent parties
legal purpose
• agreement -✓✓mutual consent between offeror and offeree
• acceptance criteria -✓✓offeree communicates to the offeror his intent to enter
into contract
must be unconditional - the offeree accepts the terms proposed by the offeror
original offeree is the only person who can legally accept the offer
• An offer may be terminated by: -✓✓revocation by offeror
rejection by offeree
time lapse
termination by operation of law
-either party dies or becomes disabled
-performance of contract becomes illegal after the offer
-subject matter is destroyed
• offer rejection -✓✓explicit rejection
proposal of new offer
counteroffer
• consideration -✓✓all parties bring something of value
• competent parties -✓✓18 years old, sober, and sane
,• legal purpose -✓✓no contracts for money laundering
• Q2: An offeree may legally reject a contract offer by any of the following means
EXCEPT: -✓✓asking for clarification or additional information
• Q2: If covered by an insurance policy, an insured may be indemnified for all of
the following except: -✓✓home remodels
• Q2: Which of the following is NOT a requirement for a legally binding contract?
-✓✓it must be a notarized document
• Q2: Which of the following refers to being restored to the financial condition you
were in before a loss? -✓✓indemnification
• Q2: A legally binding contract is where the risk of financial loss is transferred in
exchange for premiums is called: -✓✓an insurance policy
• 1-A: The purpose of the principle of indemnity is: -✓✓to prevent and insured
from making a profit on a loss
• 1-A: Which of the following best defines premium? -✓✓the fee paid by the
insured in exchange for an insurance policy
• 1-A: What is a reserve, in insurance terms? -✓✓a pool of collected premiums that
the insurer sets aside to pay claims
• 1-A: Which of the following refers to being restored to the financial condition
you were in before a loss? -✓✓indemnification
• six special characteristics of insurance contracts -✓✓personal
adhesion
utmost good faith
aleatory
, unilateral
conditional
• personal contract -✓✓protects policyholder from financial losses
does not protect property from becoming damaged
coverage follows the person, not the property
• contract of adhesion -✓✓the insurer is responsible for the terms of the contract
the insured has no say in the wording
courts favor the insured in the event of ambiguity
*doctrine of reasonable expectations*
the contract should be interpreted as a reasonable person would interpret it
• contract in good faith -✓✓applicant are expected to be completely honest about
the risk to the insurer
the insurer must rely on applicant not to conceal or misrepresent pertinent facts
• contracts are aleatory -✓✓*depending on an unknown future event*
neither party can know future losses
insurer only has to pay if and when covered losses occur
policyholders could pay more in premiums that they ever get for claims, or insurer
could pay more in claims than it receives
• contracts are unilateral -✓✓the insurer has an obligation to pay for covered losses
the insured has no obligation (he can stop paying premiums)
• contracts are conditional -✓✓the insurer only has to perform if it certain
conditions are met (such as a covered loss)
Questions and Answers (A+ Score)
• principle of indemnity -✓✓when a loss occurs, an individual should be restored
to the approximate financial condition he was in before the loss, no more and no
less
• Q1: How can insurance companies afford to pay for an individual's catastrophic
loss? -✓✓
• Q1: The purpose of the principle of indemnity: -✓✓prevents an insured from
profiting from a loss
• Q1: Which of the following best defines premium? -✓✓the fee paid by the
insured in exchange for the insurance policy
• Q1: What best describes insurance? -✓✓an economic device used to protect
against the risk of unforeseen and extraordinary financial loss
• Q1: Mark incurred $8000 damage to his car in an accident. He received $8000
from his insurance company and $4000 from the other driver. By receiving profit
from his loss, Mark could be in violation of: -✓✓the principle of indemnity
he should be in the same financial condition. no better, no worse
• indemnification may include payment for: -✓✓repairs to property
reimbursement for additional living expenses
rental cars, hotels
costs directly associated with a loss, as allowed under the policy
• legal contract/insurance policy is: -✓✓contract to provide financial protection for
a fee
legally binding because it meets the 4 requirements of a legal contract
,• What are the 4 requirements of a legal contract? -✓✓agreement (offer and
acceptance)
consideration
competent parties
legal purpose
• agreement -✓✓mutual consent between offeror and offeree
• acceptance criteria -✓✓offeree communicates to the offeror his intent to enter
into contract
must be unconditional - the offeree accepts the terms proposed by the offeror
original offeree is the only person who can legally accept the offer
• An offer may be terminated by: -✓✓revocation by offeror
rejection by offeree
time lapse
termination by operation of law
-either party dies or becomes disabled
-performance of contract becomes illegal after the offer
-subject matter is destroyed
• offer rejection -✓✓explicit rejection
proposal of new offer
counteroffer
• consideration -✓✓all parties bring something of value
• competent parties -✓✓18 years old, sober, and sane
,• legal purpose -✓✓no contracts for money laundering
• Q2: An offeree may legally reject a contract offer by any of the following means
EXCEPT: -✓✓asking for clarification or additional information
• Q2: If covered by an insurance policy, an insured may be indemnified for all of
the following except: -✓✓home remodels
• Q2: Which of the following is NOT a requirement for a legally binding contract?
-✓✓it must be a notarized document
• Q2: Which of the following refers to being restored to the financial condition you
were in before a loss? -✓✓indemnification
• Q2: A legally binding contract is where the risk of financial loss is transferred in
exchange for premiums is called: -✓✓an insurance policy
• 1-A: The purpose of the principle of indemnity is: -✓✓to prevent and insured
from making a profit on a loss
• 1-A: Which of the following best defines premium? -✓✓the fee paid by the
insured in exchange for an insurance policy
• 1-A: What is a reserve, in insurance terms? -✓✓a pool of collected premiums that
the insurer sets aside to pay claims
• 1-A: Which of the following refers to being restored to the financial condition
you were in before a loss? -✓✓indemnification
• six special characteristics of insurance contracts -✓✓personal
adhesion
utmost good faith
aleatory
, unilateral
conditional
• personal contract -✓✓protects policyholder from financial losses
does not protect property from becoming damaged
coverage follows the person, not the property
• contract of adhesion -✓✓the insurer is responsible for the terms of the contract
the insured has no say in the wording
courts favor the insured in the event of ambiguity
*doctrine of reasonable expectations*
the contract should be interpreted as a reasonable person would interpret it
• contract in good faith -✓✓applicant are expected to be completely honest about
the risk to the insurer
the insurer must rely on applicant not to conceal or misrepresent pertinent facts
• contracts are aleatory -✓✓*depending on an unknown future event*
neither party can know future losses
insurer only has to pay if and when covered losses occur
policyholders could pay more in premiums that they ever get for claims, or insurer
could pay more in claims than it receives
• contracts are unilateral -✓✓the insurer has an obligation to pay for covered losses
the insured has no obligation (he can stop paying premiums)
• contracts are conditional -✓✓the insurer only has to perform if it certain
conditions are met (such as a covered loss)
