TEXAS DEPARTMENT OF INSURANCE
PROPERTY & CASUALTY LICENSING
Texas Property and Casualty Exam
and Practice Questions
200 Verified Questions with Correct Detailed Answers
A GRADED • ACTUAL EXAM
Aligned with Texas Insurance Code, TDI Licensing Standards,
and NAIC Model Laws (2026/2027 Edition)
Cognitive Distribution: 30% Recall • 50% Application • 20% Analysis
Question Style: 75% Scenario-Based • 25% Direct Knowledge
,Examination Overview
This examination booklet contains exactly 200 multiple-choice questions designed to mirror the content, difficulty,
and cognitive distribution of the Texas Property and Casualty Insurance licensing examination administered by the
Texas Department of Insurance (TDI) under the authority of the Texas Insurance Code, Chapter 4001, and aligned
with the National Association of Insurance Commissioners (NAIC) Model Laws. Each question presents four answer
choices (A–D), exactly one of which is correct, and is accompanied by a detailed rationale citing the controlling
Texas statute, TDI rule, NAIC model provision, or property/casualty principle.
The booklet is organized into eight sections that reflect the published content outline of the Texas P&C licensing
examination: Insurance Fundamentals and Risk Management; Property Insurance (Commercial and Personal Lines);
Casualty Insurance and Liability Coverages; Commercial Lines including Businessowners, Workers' Compensation,
and Commercial Auto; Personal Lines including Homeowners, Auto, and Umbrella; Texas Insurance Laws,
Regulations, and Ethics; Underwriting, Rating, and Policy Issuance; and Claims Handling and Settlement. Special
emphasis is given to Texas-specific provisions, including the Texas Windstorm Insurance Association (TWIA),
Texas workers' compensation election, Texas anti-rebating statutes, TDI consumer protection rules, and
prompt-payment-of-claims requirements.
Recommended use: complete the full examination under a 3.5-hour timed condition, then review every
rationale—including for items answered correctly—to reinforce the underlying Texas Insurance Code citation. A
passing score on the actual Texas P&C licensing examination requires 70% or higher overall.
Secti
Topic Area Questions Count
on
1 Insurance Fundamentals & Risk Management Q1 - Q25 25
2 Property Insurance - Commercial & Personal Lines Q26 - Q55 30
3 Casualty Insurance - Liability Coverages Q56 - Q85 30
4 Commercial Lines - BOP, WC, Commercial Auto Q86 - Q110 25
5 Personal Lines - Homeowners, Auto, Umbrella Q111 - Q135 25
6 Texas Insurance Laws, Regulations & Ethics Q136 - Q160 25
7 Underwriting, Rating & Policy Issuance Q161 - Q180 20
8 Claims Handling & Settlement Q181 - Q200 20
TOTAL 200
,Section 1: Insurance Fundamentals & Risk Management
(Q1-Q25)
Q1: A commercial bakery in Houston identifies the risk that an oven malfunction could start a fire.
Management decides to install an automatic suppression system and also purchase commercial property
insurance. This combination best illustrates which two risk management techniques?
A. Avoidance and transfer
B. Reduction and transfer [CORRECT]
C. Retention and avoidance
D. Transfer and retention
Correct Answer: B
Rationale: Installing the suppression system reduces the frequency and severity of a potential fire (risk reduction / loss
control), while purchasing insurance shifts the financial consequence to an insurer (risk transfer). Avoidance would mean
exiting the baking activity entirely, and retention would mean paying the loss out of pocket; neither is illustrated here.
Q2: Which of the following is the BEST example of risk avoidance as a risk management technique?
A. A contractor purchases an umbrella policy to cover large liability judgments.
B. A department store installs surveillance cameras to deter theft.
C. An insurer decides not to write property coverage in coastal Tier 1 counties. [CORRECT]
D. A driver raises the deductible on an auto policy to lower premium.
Correct Answer: C
Rationale: Risk avoidance means not engaging in the activity that produces the risk. By declining to write coverage in Tier 1
coastal counties, the insurer eliminates the exposure entirely. Purchasing insurance is transfer, cameras are reduction, and
raising a deductible is a form of retention.
Q3: An insured suffers a $50,000 fire loss. The insurer pays the loss, then sues a negligent third-party
contractor to recover the amount paid. This right of the insurer is called:
A. Assignment
B. Subrogation [CORRECT]
C. Indemnity
D. Estoppel
Correct Answer: B
Rationale: Subrogation is the insurer's right, after payment of a loss, to step into the insured's shoes and pursue recovery
from any negligent third party legally liable for the loss. It supports the principle of indemnity by preventing the insured from
recovering twice and placing the ultimate cost on the at-fault party. Assignment is the transfer of a policy, indemnity is the
underlying principle, and estoppel prevents a party from denying a prior assertion.
, TEXAS PROPERTY & CASUALTY EXAM | 200 Verified Questions | 2026/2027 Edition
Q4: A Texas producer binds a commercial property policy on Monday and collects the initial premium. The
applicant takes possession of the binder. Which contractual element is represented by the insured's payment
of premium?
A. Offer
B. Acceptance
C. Consideration [CORRECT]
D. Legal purpose
Correct Answer: C
Rationale: Consideration is the exchange of value that supports a contract: the insured's payment of premium (and
agreement to pay future premiums) is the insured's consideration, and the insurer's promise to indemnify is the insurer's
consideration. Offer is the application, acceptance is the insurer's agreement to issue, and legal purpose requires the
contract not violate law or public policy.
Q5: Which principle holds that an insured should not profit from a loss, but only be restored to the financial
position occupied immediately before the loss?
A. Subrogation
B. Insurable interest
C. Principle of indemnity [CORRECT]
D. Utmost good faith
Correct Answer: C
Rationale: The principle of indemnity holds that insurance is designed to restore the insured to the financial position
occupied before a loss—no more, no less. Subrogation and insurable interest support indemnity, and utmost good faith
concerns honest disclosure, but indemnity is the principle that bars profiting from a covered loss.
Q6: A homeowner insures a dwelling for $300,000 when its replacement cost is $400,000. The policy has an
80% coinsurance clause. A fire causes $100,000 in damage. What amount will the insurer pay (ignoring
deductible)?
A. $75,000
B. $80,000
C. $93,750 [CORRECT]
D. $100,000
Correct Answer: C
Rationale: Under an 80% coinsurance clause, the insured must carry at least 80% of the replacement cost: 0.80 × $400,000
= $320,000 required. The coinsurance formula is (amount carried / amount required) × loss = ($300,000 / $320,000) ×
$100,000 = $93,750. The insured is penalized for underinsurance but still receives a partial recovery.
A Graded | TDI Aligned | NAIC Model Laws Page 4
PROPERTY & CASUALTY LICENSING
Texas Property and Casualty Exam
and Practice Questions
200 Verified Questions with Correct Detailed Answers
A GRADED • ACTUAL EXAM
Aligned with Texas Insurance Code, TDI Licensing Standards,
and NAIC Model Laws (2026/2027 Edition)
Cognitive Distribution: 30% Recall • 50% Application • 20% Analysis
Question Style: 75% Scenario-Based • 25% Direct Knowledge
,Examination Overview
This examination booklet contains exactly 200 multiple-choice questions designed to mirror the content, difficulty,
and cognitive distribution of the Texas Property and Casualty Insurance licensing examination administered by the
Texas Department of Insurance (TDI) under the authority of the Texas Insurance Code, Chapter 4001, and aligned
with the National Association of Insurance Commissioners (NAIC) Model Laws. Each question presents four answer
choices (A–D), exactly one of which is correct, and is accompanied by a detailed rationale citing the controlling
Texas statute, TDI rule, NAIC model provision, or property/casualty principle.
The booklet is organized into eight sections that reflect the published content outline of the Texas P&C licensing
examination: Insurance Fundamentals and Risk Management; Property Insurance (Commercial and Personal Lines);
Casualty Insurance and Liability Coverages; Commercial Lines including Businessowners, Workers' Compensation,
and Commercial Auto; Personal Lines including Homeowners, Auto, and Umbrella; Texas Insurance Laws,
Regulations, and Ethics; Underwriting, Rating, and Policy Issuance; and Claims Handling and Settlement. Special
emphasis is given to Texas-specific provisions, including the Texas Windstorm Insurance Association (TWIA),
Texas workers' compensation election, Texas anti-rebating statutes, TDI consumer protection rules, and
prompt-payment-of-claims requirements.
Recommended use: complete the full examination under a 3.5-hour timed condition, then review every
rationale—including for items answered correctly—to reinforce the underlying Texas Insurance Code citation. A
passing score on the actual Texas P&C licensing examination requires 70% or higher overall.
Secti
Topic Area Questions Count
on
1 Insurance Fundamentals & Risk Management Q1 - Q25 25
2 Property Insurance - Commercial & Personal Lines Q26 - Q55 30
3 Casualty Insurance - Liability Coverages Q56 - Q85 30
4 Commercial Lines - BOP, WC, Commercial Auto Q86 - Q110 25
5 Personal Lines - Homeowners, Auto, Umbrella Q111 - Q135 25
6 Texas Insurance Laws, Regulations & Ethics Q136 - Q160 25
7 Underwriting, Rating & Policy Issuance Q161 - Q180 20
8 Claims Handling & Settlement Q181 - Q200 20
TOTAL 200
,Section 1: Insurance Fundamentals & Risk Management
(Q1-Q25)
Q1: A commercial bakery in Houston identifies the risk that an oven malfunction could start a fire.
Management decides to install an automatic suppression system and also purchase commercial property
insurance. This combination best illustrates which two risk management techniques?
A. Avoidance and transfer
B. Reduction and transfer [CORRECT]
C. Retention and avoidance
D. Transfer and retention
Correct Answer: B
Rationale: Installing the suppression system reduces the frequency and severity of a potential fire (risk reduction / loss
control), while purchasing insurance shifts the financial consequence to an insurer (risk transfer). Avoidance would mean
exiting the baking activity entirely, and retention would mean paying the loss out of pocket; neither is illustrated here.
Q2: Which of the following is the BEST example of risk avoidance as a risk management technique?
A. A contractor purchases an umbrella policy to cover large liability judgments.
B. A department store installs surveillance cameras to deter theft.
C. An insurer decides not to write property coverage in coastal Tier 1 counties. [CORRECT]
D. A driver raises the deductible on an auto policy to lower premium.
Correct Answer: C
Rationale: Risk avoidance means not engaging in the activity that produces the risk. By declining to write coverage in Tier 1
coastal counties, the insurer eliminates the exposure entirely. Purchasing insurance is transfer, cameras are reduction, and
raising a deductible is a form of retention.
Q3: An insured suffers a $50,000 fire loss. The insurer pays the loss, then sues a negligent third-party
contractor to recover the amount paid. This right of the insurer is called:
A. Assignment
B. Subrogation [CORRECT]
C. Indemnity
D. Estoppel
Correct Answer: B
Rationale: Subrogation is the insurer's right, after payment of a loss, to step into the insured's shoes and pursue recovery
from any negligent third party legally liable for the loss. It supports the principle of indemnity by preventing the insured from
recovering twice and placing the ultimate cost on the at-fault party. Assignment is the transfer of a policy, indemnity is the
underlying principle, and estoppel prevents a party from denying a prior assertion.
, TEXAS PROPERTY & CASUALTY EXAM | 200 Verified Questions | 2026/2027 Edition
Q4: A Texas producer binds a commercial property policy on Monday and collects the initial premium. The
applicant takes possession of the binder. Which contractual element is represented by the insured's payment
of premium?
A. Offer
B. Acceptance
C. Consideration [CORRECT]
D. Legal purpose
Correct Answer: C
Rationale: Consideration is the exchange of value that supports a contract: the insured's payment of premium (and
agreement to pay future premiums) is the insured's consideration, and the insurer's promise to indemnify is the insurer's
consideration. Offer is the application, acceptance is the insurer's agreement to issue, and legal purpose requires the
contract not violate law or public policy.
Q5: Which principle holds that an insured should not profit from a loss, but only be restored to the financial
position occupied immediately before the loss?
A. Subrogation
B. Insurable interest
C. Principle of indemnity [CORRECT]
D. Utmost good faith
Correct Answer: C
Rationale: The principle of indemnity holds that insurance is designed to restore the insured to the financial position
occupied before a loss—no more, no less. Subrogation and insurable interest support indemnity, and utmost good faith
concerns honest disclosure, but indemnity is the principle that bars profiting from a covered loss.
Q6: A homeowner insures a dwelling for $300,000 when its replacement cost is $400,000. The policy has an
80% coinsurance clause. A fire causes $100,000 in damage. What amount will the insurer pay (ignoring
deductible)?
A. $75,000
B. $80,000
C. $93,750 [CORRECT]
D. $100,000
Correct Answer: C
Rationale: Under an 80% coinsurance clause, the insured must carry at least 80% of the replacement cost: 0.80 × $400,000
= $320,000 required. The coinsurance formula is (amount carried / amount required) × loss = ($300,000 / $320,000) ×
$100,000 = $93,750. The insured is penalized for underinsurance but still receives a partial recovery.
A Graded | TDI Aligned | NAIC Model Laws Page 4
