TEXAS PROPERTY AND CASUALTY INSURANCE
FINAL EXAM PAPER 2026 QUESTIONS WITH
ANSWERS GRADED A+
◉ Law of Large Numbers. Answer: The larger the number of people
with a similar exposure to loss, the more predictable actual losses will be
◉ Law of Large Numbers Example. Answer: When issuing a policy on a
35 year old male, the insurance company has no way of knowing or
accurately predicting when he will die. Instead, they will look at a large
group of similar risks - 35 year old males of similar lifestyles/health -
and make some conclusions based on statistics of past losses to create a
general idea of the predicted time of death and set premiums accordingly
◉ Insurable Interest. Answer: When the insured would incur a financial
or other type of benefit loss if the insured object was damaged/lost
◉ 3 Elements of Insurable Risk. Answer: 1. Financial (monetary
interest)
2. Blood (relative)
3. Business (a business partner)
,◉ Risk. Answer: The uncertainty or chance of a loss occurring
◉ Two Types of Risk. Answer: 1. Pure risk
2. Speculative risk
◉ Pure Risk. Answer: Situations that can only result in a loss or no
change, there is no opportunity for financial gain
◉ Speculative Risk. Answer: Situations that have the opportunity for
either loss or gain
◉ Which type of risk are insurance companies willing to accept?.
Answer: Pure risk situations
◉ Peril. Answer: The causes of loss insured against in an insurance
policy
◉ Perils of Life Insurance. Answer: The financial loss caused by the
premature death of the insured
◉ Perils of Health Insurance. Answer: The medical expenses and/or loss
of income caused by the insured's sickness or accidental injury
, ◉ Perils of Property Insurance. Answer: The loss of physical property or
the loss of its income-producing abilities
◉ Perils of Casualty Insurance. Answer: The loss and/or damage of
property and resulting liabilities
◉ Hazard. Answer: Conditions or situations that increase the probability
of an insured loss occurring
◉ 3 Classifications of Hazards. Answer: 1. Physical hazards
2. Moral hazards
3. Morale hazards
◉ Physical Hazards. Answer: Hazards arising from the material,
structural, or operational features of the risk, apart from the persons
owning or managing it
◉ Moral Hazards. Answer: Applicants that may lie on an application for
insurance, or in the past have submitted fraudulent claims against an
insurer
◉ Morale Hazards. Answer: Increase in the hazard presented by a risk,
arising from the insured's indifference to loss because of the existence of
insurance
FINAL EXAM PAPER 2026 QUESTIONS WITH
ANSWERS GRADED A+
◉ Law of Large Numbers. Answer: The larger the number of people
with a similar exposure to loss, the more predictable actual losses will be
◉ Law of Large Numbers Example. Answer: When issuing a policy on a
35 year old male, the insurance company has no way of knowing or
accurately predicting when he will die. Instead, they will look at a large
group of similar risks - 35 year old males of similar lifestyles/health -
and make some conclusions based on statistics of past losses to create a
general idea of the predicted time of death and set premiums accordingly
◉ Insurable Interest. Answer: When the insured would incur a financial
or other type of benefit loss if the insured object was damaged/lost
◉ 3 Elements of Insurable Risk. Answer: 1. Financial (monetary
interest)
2. Blood (relative)
3. Business (a business partner)
,◉ Risk. Answer: The uncertainty or chance of a loss occurring
◉ Two Types of Risk. Answer: 1. Pure risk
2. Speculative risk
◉ Pure Risk. Answer: Situations that can only result in a loss or no
change, there is no opportunity for financial gain
◉ Speculative Risk. Answer: Situations that have the opportunity for
either loss or gain
◉ Which type of risk are insurance companies willing to accept?.
Answer: Pure risk situations
◉ Peril. Answer: The causes of loss insured against in an insurance
policy
◉ Perils of Life Insurance. Answer: The financial loss caused by the
premature death of the insured
◉ Perils of Health Insurance. Answer: The medical expenses and/or loss
of income caused by the insured's sickness or accidental injury
, ◉ Perils of Property Insurance. Answer: The loss of physical property or
the loss of its income-producing abilities
◉ Perils of Casualty Insurance. Answer: The loss and/or damage of
property and resulting liabilities
◉ Hazard. Answer: Conditions or situations that increase the probability
of an insured loss occurring
◉ 3 Classifications of Hazards. Answer: 1. Physical hazards
2. Moral hazards
3. Morale hazards
◉ Physical Hazards. Answer: Hazards arising from the material,
structural, or operational features of the risk, apart from the persons
owning or managing it
◉ Moral Hazards. Answer: Applicants that may lie on an application for
insurance, or in the past have submitted fraudulent claims against an
insurer
◉ Morale Hazards. Answer: Increase in the hazard presented by a risk,
arising from the insured's indifference to loss because of the existence of
insurance
