Texas General Lines Property & Casualty
Insurance Examination Questions And
Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
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Question 1
Which principle requires that both parties to an insurance contract provide
something of value?
A. Indemnity
B. Subrogation
C. Consideration
D. Utmost good faith
Rationale: Consideration is the exchange of value in a contract. The insured pays
premiums while the insurer provides financial protection. Without
consideration, a contract is not legally binding. It ensures mutual obligation
between both parties.
Question 2
Which peril is typically covered under a standard HO-3 policy but NOT under a
named-peril policy?
A. Fire
B. Theft
,C. Open perils coverage on dwelling
D. Windstorm
Rationale: HO-3 policies provide open-peril coverage on the dwelling, meaning
all risks are covered except exclusions. Named-peril policies only cover
specifically listed risks. This makes HO-3 broader and more comprehensive.
Question 3
What does liability insurance primarily protect against?
A. Damage to insured property
B. Loss of income
C. Legal responsibility to others for bodily injury or property damage
D. Wear and tear of property
Rationale: Liability insurance covers the insured’s legal obligations when they
cause harm to others. It includes defense costs and settlements. It does not cover
the insured’s own property losses.
Question 4
Which of the following is an example of an insurable risk?
A. Gambling loss
B. Intentional damage
C. Pure risk
D. Speculative investment
Rationale: Pure risk involves only the possibility of loss, not gain, and is
insurable. Insurance companies avoid speculative risks because they involve
both profit and loss potential.
Question 5
,What is the purpose of a deductible?
A. Increase coverage limits
B. Eliminate policy exclusions
C. Reduce small claims and share risk with insured
D. Guarantee claim approval
Rationale: A deductible is the portion the insured pays before insurance applies.
It reduces minor claims and encourages responsible risk-sharing. It also helps
keep premiums lower.
Question 6
A policy condition that suspends coverage during noncompliance is called:
A. Endorsement
B. Rider
C. Condition precedent
D. Declaration clause
Rationale: Conditions precedent must be satisfied before coverage applies.
Failure to meet them can suspend or void coverage. They are essential to
enforce contract obligations.
Question 7
Which peril is specifically excluded in most standard homeowners policies?
A. Fire
B. Lightning
C. Earth movement
D. Theft
Rationale: Earth movement, including earthquakes and landslides, is excluded
because of catastrophic loss potential. Separate endorsements or policies are
required for coverage.
, Question 8
What is the purpose of subrogation?
A. Increase premiums
B. Transfer policy ownership
C. Allow insurer to recover losses from responsible third party
D. Cancel policy automatically
Rationale: Subrogation allows insurers to pursue third parties responsible for a
loss after paying the insured. This prevents the insured from receiving double
recovery.
Question 9
Which type of policy provides coverage for liability arising from business
operations?
A. Personal auto policy
B. HO-3 policy
C. Commercial general liability (CGL)
D. Dwelling policy
Rationale: CGL policies cover business liability exposures such as bodily injury,
property damage, and advertising injury. They are essential for commercial
operations.
Question 10
What is the insuring agreement in a policy?
A. List of exclusions
B. Premium payment clause
Insurance Examination Questions And
Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
Download Pdf
Question 1
Which principle requires that both parties to an insurance contract provide
something of value?
A. Indemnity
B. Subrogation
C. Consideration
D. Utmost good faith
Rationale: Consideration is the exchange of value in a contract. The insured pays
premiums while the insurer provides financial protection. Without
consideration, a contract is not legally binding. It ensures mutual obligation
between both parties.
Question 2
Which peril is typically covered under a standard HO-3 policy but NOT under a
named-peril policy?
A. Fire
B. Theft
,C. Open perils coverage on dwelling
D. Windstorm
Rationale: HO-3 policies provide open-peril coverage on the dwelling, meaning
all risks are covered except exclusions. Named-peril policies only cover
specifically listed risks. This makes HO-3 broader and more comprehensive.
Question 3
What does liability insurance primarily protect against?
A. Damage to insured property
B. Loss of income
C. Legal responsibility to others for bodily injury or property damage
D. Wear and tear of property
Rationale: Liability insurance covers the insured’s legal obligations when they
cause harm to others. It includes defense costs and settlements. It does not cover
the insured’s own property losses.
Question 4
Which of the following is an example of an insurable risk?
A. Gambling loss
B. Intentional damage
C. Pure risk
D. Speculative investment
Rationale: Pure risk involves only the possibility of loss, not gain, and is
insurable. Insurance companies avoid speculative risks because they involve
both profit and loss potential.
Question 5
,What is the purpose of a deductible?
A. Increase coverage limits
B. Eliminate policy exclusions
C. Reduce small claims and share risk with insured
D. Guarantee claim approval
Rationale: A deductible is the portion the insured pays before insurance applies.
It reduces minor claims and encourages responsible risk-sharing. It also helps
keep premiums lower.
Question 6
A policy condition that suspends coverage during noncompliance is called:
A. Endorsement
B. Rider
C. Condition precedent
D. Declaration clause
Rationale: Conditions precedent must be satisfied before coverage applies.
Failure to meet them can suspend or void coverage. They are essential to
enforce contract obligations.
Question 7
Which peril is specifically excluded in most standard homeowners policies?
A. Fire
B. Lightning
C. Earth movement
D. Theft
Rationale: Earth movement, including earthquakes and landslides, is excluded
because of catastrophic loss potential. Separate endorsements or policies are
required for coverage.
, Question 8
What is the purpose of subrogation?
A. Increase premiums
B. Transfer policy ownership
C. Allow insurer to recover losses from responsible third party
D. Cancel policy automatically
Rationale: Subrogation allows insurers to pursue third parties responsible for a
loss after paying the insured. This prevents the insured from receiving double
recovery.
Question 9
Which type of policy provides coverage for liability arising from business
operations?
A. Personal auto policy
B. HO-3 policy
C. Commercial general liability (CGL)
D. Dwelling policy
Rationale: CGL policies cover business liability exposures such as bodily injury,
property damage, and advertising injury. They are essential for commercial
operations.
Question 10
What is the insuring agreement in a policy?
A. List of exclusions
B. Premium payment clause
