InsTX-PersPC55 Texas Personal Lines Property & Casualty
Insurance Exam – 159 Practice Questions with Answers
and Explanations. Free study guide for Texas P&C
insurance licensing exam insurance agent license
preparation
Complete Coverage Summary:
Insurance Concepts: Risk, peril, hazard, contracts, indemnity, subrogation, insurable
interest, valuation (ACV/RC), policy types (occurrence/claims-made), coinsurance,
reinsurance
Texas Insurance Law: TDI, licensing, continuing education, unfair practices, FAIR Plan,
TWIA, consumer protection, guaranty association, premium tax, prompt payment
Homeowners Insurance: HO-3, DP policies, coverage sections (A-D), perils, exclusions
(flood, earthquake), deductibles (standard, hurricane, windstorm), endorsements,
cancellation/nonrenewal
Personal Auto Insurance: PAP coverage parts (A-D), liability limits, PIP, MedPay, physical
damage, UM/UIM, discounts, SR-22, newly acquired auto, temporary substitute, non-owned
auto, TNC endorsement
Property & Casualty Specialties: Flood (NFIP), personal umbrella, condo (HO-6), renters
(HO-4), mobile homes, RV, watercraft, scheduled personal property
Claims & Legal: Proof of loss, reservation of rights, subrogation, salvage, statute of
limitations, comparative negligence, tort system
1. What is the primary purpose of insurance?
A. Investment growth
B. Transfer of risk*
,C. Tax avoidance
D. Guaranteed profit
Insurance transfers financial risk from the insured to the insurer in exchange for premium.
Coverage: Insurance Concepts – Risk Management
2. Which of the following is a pure risk?
A. Gambling
B. Fire damage to a home*
C. Stock market investment
D. Starting a business
Pure risk involves only the possibility of loss or no loss, not gain (e.g., fire, accident).
Coverage: Insurance Concepts – Risk Types
3. What is a hazard in insurance terms?
A. A covered peril
B. A condition that increases the likelihood of loss*
C. A type of coverage
D. A policy provision
Hazard is a condition that increases the chance of loss (e.g., icy roads, stored flammables).
Coverage: Insurance Concepts – Hazard
4. Which is an example of moral hazard?
,A. Living in a flood zone
B. Dishonesty or intentional destruction of property*
C. Poor wiring in a home
D. Slippery roads
Moral hazard involves character defects like fraud or intentional acts.
Coverage: Insurance Concepts – Moral Hazard
5. What principle states that insurance should restore the insured to their pre-loss position?
A. Subrogation
B. Indemnity*
C. Insurable interest
D. Adhesion
Indemnity means making the insured whole, not profiting from loss.
Coverage: Insurance Concepts – Indemnity
6. When must insurable interest exist in property insurance?
A. At application only
B. At time of loss*
C. At policy renewal
D. At time of claim filing
Property insurance requires insurable interest at time of loss, not necessarily at application.
Coverage: Insurance Concepts – Insurable Interest
, 7. What is the legal doctrine that allows an insurer to pursue a third party after paying a
claim?
A. Assignment
B. Subrogation*
C. Waiver
D. Estoppel
Subrogation allows the insurer to recover from the at-fault party after paying the insured.
Coverage: Insurance Concepts – Subrogation
8. What is the difference between actual cash value (ACV) and replacement cost?
A. ACV includes land value
B. ACV considers depreciation; replacement cost does not*
C. Replacement cost is always lower
D. No difference
ACV = Replacement Cost - Depreciation. Replacement cost pays full repair/replacement
without depreciation.
Coverage: Insurance Concepts – Valuation
9. Which of the following is a peril?
A. Negligence
B. Fire*
Insurance Exam – 159 Practice Questions with Answers
and Explanations. Free study guide for Texas P&C
insurance licensing exam insurance agent license
preparation
Complete Coverage Summary:
Insurance Concepts: Risk, peril, hazard, contracts, indemnity, subrogation, insurable
interest, valuation (ACV/RC), policy types (occurrence/claims-made), coinsurance,
reinsurance
Texas Insurance Law: TDI, licensing, continuing education, unfair practices, FAIR Plan,
TWIA, consumer protection, guaranty association, premium tax, prompt payment
Homeowners Insurance: HO-3, DP policies, coverage sections (A-D), perils, exclusions
(flood, earthquake), deductibles (standard, hurricane, windstorm), endorsements,
cancellation/nonrenewal
Personal Auto Insurance: PAP coverage parts (A-D), liability limits, PIP, MedPay, physical
damage, UM/UIM, discounts, SR-22, newly acquired auto, temporary substitute, non-owned
auto, TNC endorsement
Property & Casualty Specialties: Flood (NFIP), personal umbrella, condo (HO-6), renters
(HO-4), mobile homes, RV, watercraft, scheduled personal property
Claims & Legal: Proof of loss, reservation of rights, subrogation, salvage, statute of
limitations, comparative negligence, tort system
1. What is the primary purpose of insurance?
A. Investment growth
B. Transfer of risk*
,C. Tax avoidance
D. Guaranteed profit
Insurance transfers financial risk from the insured to the insurer in exchange for premium.
Coverage: Insurance Concepts – Risk Management
2. Which of the following is a pure risk?
A. Gambling
B. Fire damage to a home*
C. Stock market investment
D. Starting a business
Pure risk involves only the possibility of loss or no loss, not gain (e.g., fire, accident).
Coverage: Insurance Concepts – Risk Types
3. What is a hazard in insurance terms?
A. A covered peril
B. A condition that increases the likelihood of loss*
C. A type of coverage
D. A policy provision
Hazard is a condition that increases the chance of loss (e.g., icy roads, stored flammables).
Coverage: Insurance Concepts – Hazard
4. Which is an example of moral hazard?
,A. Living in a flood zone
B. Dishonesty or intentional destruction of property*
C. Poor wiring in a home
D. Slippery roads
Moral hazard involves character defects like fraud or intentional acts.
Coverage: Insurance Concepts – Moral Hazard
5. What principle states that insurance should restore the insured to their pre-loss position?
A. Subrogation
B. Indemnity*
C. Insurable interest
D. Adhesion
Indemnity means making the insured whole, not profiting from loss.
Coverage: Insurance Concepts – Indemnity
6. When must insurable interest exist in property insurance?
A. At application only
B. At time of loss*
C. At policy renewal
D. At time of claim filing
Property insurance requires insurable interest at time of loss, not necessarily at application.
Coverage: Insurance Concepts – Insurable Interest
, 7. What is the legal doctrine that allows an insurer to pursue a third party after paying a
claim?
A. Assignment
B. Subrogation*
C. Waiver
D. Estoppel
Subrogation allows the insurer to recover from the at-fault party after paying the insured.
Coverage: Insurance Concepts – Subrogation
8. What is the difference between actual cash value (ACV) and replacement cost?
A. ACV includes land value
B. ACV considers depreciation; replacement cost does not*
C. Replacement cost is always lower
D. No difference
ACV = Replacement Cost - Depreciation. Replacement cost pays full repair/replacement
without depreciation.
Coverage: Insurance Concepts – Valuation
9. Which of the following is a peril?
A. Negligence
B. Fire*
