TX GENERAL LINES PROPERTY AND
CASUALTY AGENT EXAM PREP |
COMPREHENSIVE STUDY GUIDE, PRACTICE
QUESTIONS, CORRECT ANSWERS AND
EXAM REVIEW
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
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,loss 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 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 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 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 process of dealing with risk
- risk avoidance
- risk control
- risk sharing
- risk retention
- risk transfer
risk avoidance avoid risk
ex) not owning car avoids risk of car being stolen or damaged
risk control 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 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 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 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 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)
Speculative risks—those that offer the chance of gain as well as loss—are not insurable. It
is not insurance's role to protect a person's loss in situations where the result may just as
easily had been a gain, such as gambling or investing in the stock market.
CASUALTY AGENT EXAM PREP |
COMPREHENSIVE STUDY GUIDE, PRACTICE
QUESTIONS, CORRECT ANSWERS AND
EXAM REVIEW
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep
,loss 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 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 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 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 process of dealing with risk
- risk avoidance
- risk control
- risk sharing
- risk retention
- risk transfer
risk avoidance avoid risk
ex) not owning car avoids risk of car being stolen or damaged
risk control 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 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 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 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 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)
Speculative risks—those that offer the chance of gain as well as loss—are not insurable. It
is not insurance's role to protect a person's loss in situations where the result may just as
easily had been a gain, such as gambling or investing in the stock market.
