TEXAS PROPERTY AND CASUALTY INSURANCE
LICENSING EXAM — PRACTICE QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES 2026 Q&A | INSTANT DOWNLOAD PDF
1. Which of the following best defines "insurance"?
A. A method of creating risk
B. A contract that eliminates risk
C. A contract that transfers risk
D. A savings plan
Rationale: Insurance transfers the financial risk of loss from an individual or
business to an insurance company in exchange for a premium.
2. What is the primary purpose of the Texas Department of Insurance (TDI)?
A. To promote insurance company profits
B. To enforce federal insurance laws
C. To regulate the insurance industry and protect consumers
D. To sell insurance policies
Rationale: The TDI regulates insurance operations and ensures fair practices to
protect consumers.
3. The person who purchases an insurance policy is known as the:
A. Insurer
B. Policyholder
C. Adjuster
D. Producer
Rationale: The policyholder (or insured) is the person who owns the insurance
policy.
,4. Which of the following is an example of a peril?
A. Negligence
B. Morale hazard
C. Fire
D. Lapse
Rationale: A peril is the actual cause of loss, such as fire, windstorm, or theft.
5. A deductible in an insurance policy:
A. Eliminates small claims
B. Is the amount the insured must pay before the insurer pays a loss
C. Is paid by the insurer
D. Reduces the policy limit
Rationale: The deductible represents the insured’s portion of a covered loss
before the insurer’s obligation begins.
6. Which of the following is considered a “hazard”?
A. Oily rags left near a furnace
B. A fire destroying a house
C. Lightning
D. Tornado
Rationale: A hazard increases the likelihood of a peril occurring. Oily rags increase
the chance of fire.
7. Which type of insurance provides protection for damage to property you
own?
A. Liability insurance
B. Property insurance
, C. Medical insurance
D. Casualty insurance
Rationale: Property insurance covers direct physical loss or damage to the
insured’s own property.
8. Liability insurance covers:
A. Legal responsibility for injury or damage to others
B. The insured’s property
C. Losses from fire only
D. Intentional acts
Rationale: Liability insurance protects against claims for bodily injury or property
damage the insured causes to others.
9. Which of the following best describes “actual cash value”?
A. Replacement cost plus depreciation
B. Market value plus inflation
C. Replacement cost minus depreciation
D. Stated value
Rationale: Actual cash value (ACV) equals replacement cost less depreciation.
10. The insured’s promise to pay the premium is an example of which element
of a contract?
A. Legal purpose
B. Competent parties
C. Consideration
D. Offer
Rationale: Consideration is the exchange of something of value; the insured’s
consideration is the premium payment.
LICENSING EXAM — PRACTICE QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES 2026 Q&A | INSTANT DOWNLOAD PDF
1. Which of the following best defines "insurance"?
A. A method of creating risk
B. A contract that eliminates risk
C. A contract that transfers risk
D. A savings plan
Rationale: Insurance transfers the financial risk of loss from an individual or
business to an insurance company in exchange for a premium.
2. What is the primary purpose of the Texas Department of Insurance (TDI)?
A. To promote insurance company profits
B. To enforce federal insurance laws
C. To regulate the insurance industry and protect consumers
D. To sell insurance policies
Rationale: The TDI regulates insurance operations and ensures fair practices to
protect consumers.
3. The person who purchases an insurance policy is known as the:
A. Insurer
B. Policyholder
C. Adjuster
D. Producer
Rationale: The policyholder (or insured) is the person who owns the insurance
policy.
,4. Which of the following is an example of a peril?
A. Negligence
B. Morale hazard
C. Fire
D. Lapse
Rationale: A peril is the actual cause of loss, such as fire, windstorm, or theft.
5. A deductible in an insurance policy:
A. Eliminates small claims
B. Is the amount the insured must pay before the insurer pays a loss
C. Is paid by the insurer
D. Reduces the policy limit
Rationale: The deductible represents the insured’s portion of a covered loss
before the insurer’s obligation begins.
6. Which of the following is considered a “hazard”?
A. Oily rags left near a furnace
B. A fire destroying a house
C. Lightning
D. Tornado
Rationale: A hazard increases the likelihood of a peril occurring. Oily rags increase
the chance of fire.
7. Which type of insurance provides protection for damage to property you
own?
A. Liability insurance
B. Property insurance
, C. Medical insurance
D. Casualty insurance
Rationale: Property insurance covers direct physical loss or damage to the
insured’s own property.
8. Liability insurance covers:
A. Legal responsibility for injury or damage to others
B. The insured’s property
C. Losses from fire only
D. Intentional acts
Rationale: Liability insurance protects against claims for bodily injury or property
damage the insured causes to others.
9. Which of the following best describes “actual cash value”?
A. Replacement cost plus depreciation
B. Market value plus inflation
C. Replacement cost minus depreciation
D. Stated value
Rationale: Actual cash value (ACV) equals replacement cost less depreciation.
10. The insured’s promise to pay the premium is an example of which element
of a contract?
A. Legal purpose
B. Competent parties
C. Consideration
D. Offer
Rationale: Consideration is the exchange of something of value; the insured’s
consideration is the premium payment.
