Free Texas property & casualty practice questions

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1.An applicant completes an application, makes the statements it requires, and pays the initial premium. The insurer then issues the policy. The applicant's premium payment and application statements supply which element of a legal contract?
Answer: C. Consideration
Consideration is the value each side gives up. The applicant gives the premium plus the representations made in the application; the insurer gives its promise to pay covered losses. Offer and acceptance is the exchange that forms the agreement. Legal purpose means the object of the contract is lawful. Competent parties means both sides have the legal capacity to contract.
Source: TX P&C General Knowledge outline III.N (Elements of a contract); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
2.A commercial building has a replacement cost of $500,000. The policy carries a limit of $300,000 and an 80 percent coinsurance clause. A covered fire causes $100,000 of damage. Ignoring any deductible, how much will the insurer pay?
Answer: B. $75,000
Coinsurance compares the limit carried with the limit required. The required amount is 80 percent of $500,000, which is $400,000. The insured carried $300,000, so the ratio is $300,000 divided by $400,000, or 0.75. Applying that ratio to the $100,000 loss gives $75,000. Because the insured carried less than the policy required, the insured shares in the loss.
Source: TX P&C General Knowledge outline II.L (Coinsurance/Insurance to value); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
3.A homeowner keeps a pile of oil-soaked rags on the floor beside the furnace. In insurance terms, the pile of rags is best described as which of the following?
Answer: C. A physical hazard
A hazard is a condition that increases the likelihood or the severity of a loss. Oil-soaked rags next to a heat source are a tangible, physical condition, so they are a physical hazard. The peril would be the fire itself, which is the cause of loss. A pure risk is the chance of loss with no chance of gain. A moral hazard is dishonesty in the insured, such as a willingness to file a false claim.
Source: TX P&C General Knowledge outline II.D (Hazard), subsections 1-3 moral, morale, physical; Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
4.Which section of a property and casualty policy identifies the named insured, the policy period, the covered property, and the limits of insurance?
Answer: A. The declarations
The declarations page carries the facts specific to one policy: who is insured, what is covered, for how much, and over what period. The insuring agreement states the insurer's core promise to pay. The conditions set out the duties each party owes, such as giving notice of a loss. The exclusions describe what the policy leaves out.
Source: TX P&C General Knowledge outline III.A (Declarations); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
5.A homeowner sells her house on June 1 for cash, with no seller financing, but leaves her homeowners policy in force. The house is damaged by fire on June 15. Why will her claim for the building fail?
Answer: A. She no longer held an insurable interest in the building when the loss occurred
Property insurance is a contract of indemnity, so the insured must stand to suffer actual financial loss at the moment the loss happens. Once she sold the house she no longer had an insurable interest in it, so there is nothing to indemnify even though the policy is still in force and premiums are paid. This is why insurable interest in property is tested at the time of loss, unlike life insurance, where it is tested when the policy is issued.
Source: TX P&C General Knowledge outline II.B (Insurable interest); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
6.An insurer writes homeowners policies on a large number of similar dwellings with independent loss exposures. Which principle explains why its actual loss experience grows closer to its predicted loss experience as the number of insured dwellings rises?
Answer: D. The law of large numbers
The law of large numbers holds that as the number of similar, independent exposure units increases, actual results move toward expected results. It is the statistical basis that lets an insurer price coverage at all. Adverse selection describes higher-risk applicants seeking coverage disproportionately. Indemnity restores the insured to their pre-loss financial position. Subrogation lets the insurer step into the insured's shoes to recover from a responsible third party.
Source: TX P&C General Knowledge outline II.A.1 (Insurance — Law of Large Numbers); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
7.A Texas insurer notifies a claimant in writing that it will pay a first-party claim. Under the Texas Insurance Code, by when must the insurer actually pay?
Answer: C. By the fifth business day after the notice
Tex. Ins. Code Sec. 542.057(a) requires the insurer to pay the claim by the fifth business day after the date it gives notice that it will pay. The other periods belong to earlier steps of the same statute: Sec. 542.055 gives the insurer 15 days to acknowledge a claim, begin investigating and request the items it needs, and Sec. 542.056 gives it 15 business days after receiving all of those items to accept or reject the claim. Keeping the three deadlines apart is the point of this question.
Source: Tex. Ins. Code Sec. 542.057(a) (Payment of Claim)
Choose an answer to see the explanation.
8.A property and casualty agent tells a business owner that if the business places its commercial general liability policy through her, she will personally refund $200 of the premium after the policy is issued. The refund appears nowhere in the policy. Which prohibition does this conduct fall under?
Answer: A. The prohibition on offering a rebate, discount or other inducement not specified in the policy
Tex. Ins. Code Sec. 1806.104(b) forbids an insurer, agent or broker from offering any rebate, discount, abatement, credit or reduction, or any other inducement that is not specified in the policy. A cash refund of premium promised outside the contract is the clearest example. That prohibition reaches this transaction because Sec. 1806.102(a) applies the subchapter to insurers writing casualty insurance on Texas risks, and commercial general liability is a casualty line. The other options describe different prohibited practices: misrepresentation concerns false statements about a policy's terms or benefits, coercion involves force or undue pressure in an insurance transaction, and defamation concerns false statements about an insurer's financial condition.
Source: Tex. Ins. Code Sec. 1806.104(b) (Prohibited Acts), reaching casualty lines via Sec. 1806.102(a) (Applicability of Subchapter)
Choose an answer to see the explanation.
9.A commercial property policy insures direct physical loss to a building, then lists earth movement among its exclusions. What is the effect of that exclusion?
Answer: D. It removes earth movement losses from the coverage the insuring agreement would otherwise grant
The insuring agreement grants coverage broadly, and the exclusions then carve territory back out of that grant. An excluded cause of loss is simply not covered, so no limit, deductible or valuation method applies to it at all. A deductible reduces what is paid on a covered loss. Coverage for an excluded peril returns only if an endorsement adds it back, and nothing obliges the insurer to offer one. Valuation is a separate provision that applies once a loss is covered.
Source: TX P&C General Knowledge outline III.D (Exclusions); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.
10.A driver runs a red light and strikes another vehicle, injuring its driver, who then sues. Showing that running the red light directly produced those injuries establishes which element of negligence?
Answer: B. Proximate cause
Negligence requires four elements: a duty owed, a breach of that duty, proximate cause, and actual damages. Proximate cause is the unbroken causal link between the breach and the harm. Here the duty is to drive with reasonable care, the breach is running the red light, the damages are the injuries, and the link between the breach and those injuries is proximate cause.
Source: TX P&C General Knowledge outline V.F (Negligence); Pearson VUE #124401 eff. 2025-12-01
Choose an answer to see the explanation.

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Free Texas property & casualty practice questions

1.An applicant completes an application, makes the statements it requires, and pays the initial premium. The insurer then issues the policy. The applicant's premium payment and application statements supply which element of a legal contract?

2.A commercial building has a replacement cost of $500,000. The policy carries a limit of $300,000 and an 80 percent coinsurance clause. A covered fire causes $100,000 of damage. Ignoring any deductible, how much will the insurer pay?

3.A homeowner keeps a pile of oil-soaked rags on the floor beside the furnace. In insurance terms, the pile of rags is best described as which of the following?

4.Which section of a property and casualty policy identifies the named insured, the policy period, the covered property, and the limits of insurance?

5.A homeowner sells her house on June 1 for cash, with no seller financing, but leaves her homeowners policy in force. The house is damaged by fire on June 15. Why will her claim for the building fail?

6.An insurer writes homeowners policies on a large number of similar dwellings with independent loss exposures. Which principle explains why its actual loss experience grows closer to its predicted loss experience as the number of insured dwellings rises?

7.A Texas insurer notifies a claimant in writing that it will pay a first-party claim. Under the Texas Insurance Code, by when must the insurer actually pay?

9.A commercial property policy insures direct physical loss to a building, then lists earth movement among its exclusions. What is the effect of that exclusion?

10.A driver runs a red light and strikes another vehicle, injuring its driver, who then sues. Showing that running the red light directly produced those injuries establishes which element of negligence?

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