Texas Property & Casualty Insurance Exam with precise detailed
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solutions
A condition or situation that presents a possibility of loss is a (an): - correct
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answer✔✔exposure
The purpose of insurance is to: - correct answer✔✔transfer risk
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Which hazard can be described as a careless attitude or general indifference on the part of
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the insured toward the occurrence of loss? - correct answer✔✔morale
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Which risk is insurable? - correct answer✔✔pure
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With regard to insurance, risk can be defined as: - correct answer✔✔uncertainty regarding
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loss
Treating risk by purchasing insurance is an example of what type of risk management? -
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correct answer✔✔transfer ||
Robert and Carolyn live in a busy city and decide that not owning a car is the solution to
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not experience having a car stolen. What method describes this philosophy? - correct
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answer✔✔avoidance
Dishonesty on the part of an insured is an example of what? - correct answer✔✔a moral
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hazard
What is an example of reduction as a method of handling risk? - correct
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answer✔✔Installing a burglar alarm || || ||
,Driving too fast and not wearing a seat belt are examples of? - correct answer✔✔morale
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hazard
The risk that involves the chance of both loss and gain is? - correct answer✔✔speculative
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risk
Self-insurance is an example of what kind of risk treatment? - correct answer✔✔Retention || || || || || || || || || || || ||
If John's father transfers ownership of a house to John, can John buy insurance? - correct
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answer✔✔Yes because he has an insurable interest. || || || || || ||
Fire would be an example of a what? - correct answer✔✔peril
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What is the actual cause of a loss? - correct answer✔✔peril
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What kind of risk is the stock market? - correct answer✔✔speculative risk
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A ____ is a condition that increases the chance of loss. - correct answer✔✔hazard
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Faulty wiring causes a fire that destroys a building. The faulty wiring is considered to be
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a(n): - correct answer✔✔hazard
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A chance, possibility, or uncertainty of loss is known as? - correct answer✔✔risk
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Examples of perils are_____? - correct answer✔✔fire, wind and lightning
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,Indemnity insurance will _____? - correct answer✔✔restores insured to pre-loss condition
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The types of hazards are_____? - correct answer✔✔moral, morale, and physical
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________ is when people with a greater than average exposure to loss to purchase
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insurance. - correct answer✔✔Adverse selection || || || ||
Methods of handling risk are avoidance, reduction, retention, transfer and _____. - correct
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answer✔✔Sharing (ARRTS) ||
Elements of insurable risk are calculable, affordable, non-catastrophic, homogenous,
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accidental and _____. - correct answer✔✔Measurable (CANHAM) || || || || || ||
Myron, who is 16, signs a contract to lease a car. This would probably not be considered a
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valid contract under the law because _____. - correct answer✔✔He is not competent at 16.
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Ben bought an automobile four years ago for $15,000. Today it is worth $6,000. According to
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the principle of indemnity, how much should Ben receive if the car is totally demolished? -
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correct answer✔✔$6,000 ||
Harry Arne and his cousin each own 50% of a $160,000 duplex. Suppose Harry purchases
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$160,000 of insurance on the home. If it burns to the ground, how much would Harry
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collect? - correct answer✔✔$80,000 || || ||
Under a unilateral contract, which parties are legally bound to perform under the contract?
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- correct answer✔✔Insurer only
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Which part of an insurance policy describes the responsibilities and obligations of both the
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insurance company and the insured under the policy? - correct answer✔✔Conditions
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, The insuring agreement section of a policy describes the ____ you are insured against. -
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correct answer✔✔perils ||
The elements of a valid contract are legal purpose, consideration, competent parties, and
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_____. - correct answer✔✔Offer and acceptance
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Both parties rely on statements made to each other when writing a contract. This is known
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as? - correct answer✔✔Utmost good faith
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The limits of liability are found in which of the following sections of a casualty policy? -
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correct answer✔✔Declarations ||
An insurance company issued a homeowners policy that included ambiguous language
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regarding how a loss was settled. The insured sued the insurance company and won. The
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judge stated that due to the ambiguous language in the contract the decision must be made
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in favor of the insured. The judge was basing this decision on which of the following types
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of insurance contract? - correct answer✔✔Contract of adhesion
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A policy may be amended only with a(n): - correct answer✔✔endorsement
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The procedure for resolving a disagreement between an insured and an insurance company
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about a loss is described in which of the following parts of an insurance policy? - correct
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answer✔✔Conditions
Who does a personal contract protect? - correct answer✔✔The individual who owns the
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property.
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solutions
A condition or situation that presents a possibility of loss is a (an): - correct
|| || || || || || || || || || || || || || ||
answer✔✔exposure
The purpose of insurance is to: - correct answer✔✔transfer risk
|| || || || || || || || ||
Which hazard can be described as a careless attitude or general indifference on the part of
|| || || || || || || || || || || || || || || ||
the insured toward the occurrence of loss? - correct answer✔✔morale
|| || || || || || || || ||
Which risk is insurable? - correct answer✔✔pure
|| || || || || ||
With regard to insurance, risk can be defined as: - correct answer✔✔uncertainty regarding
|| || || || || || || || || || || || ||
loss
Treating risk by purchasing insurance is an example of what type of risk management? -
|| || || || || || || || || || || || || || ||
correct answer✔✔transfer ||
Robert and Carolyn live in a busy city and decide that not owning a car is the solution to
|| || || || || || || || || || || || || || || || || || ||
not experience having a car stolen. What method describes this philosophy? - correct
|| || || || || || || || || || || || ||
answer✔✔avoidance
Dishonesty on the part of an insured is an example of what? - correct answer✔✔a moral
|| || || || || || || || || || || || || || || ||
hazard
What is an example of reduction as a method of handling risk? - correct
|| || || || || || || || || || || || || ||
answer✔✔Installing a burglar alarm || || ||
,Driving too fast and not wearing a seat belt are examples of? - correct answer✔✔morale
|| || || || || || || || || || || || || || ||
hazard
The risk that involves the chance of both loss and gain is? - correct answer✔✔speculative
|| || || || || || || || || || || || || || ||
risk
Self-insurance is an example of what kind of risk treatment? - correct answer✔✔Retention || || || || || || || || || || || ||
If John's father transfers ownership of a house to John, can John buy insurance? - correct
|| || || || || || || || || || || || || || || ||
answer✔✔Yes because he has an insurable interest. || || || || || ||
Fire would be an example of a what? - correct answer✔✔peril
|| || || || || || || || || ||
What is the actual cause of a loss? - correct answer✔✔peril
|| || || || || || || || || ||
What kind of risk is the stock market? - correct answer✔✔speculative risk
|| || || || || || || || || || ||
A ____ is a condition that increases the chance of loss. - correct answer✔✔hazard
|| || || || || || || || || || || || ||
Faulty wiring causes a fire that destroys a building. The faulty wiring is considered to be
|| || || || || || || || || || || || || || || ||
a(n): - correct answer✔✔hazard
|| || ||
A chance, possibility, or uncertainty of loss is known as? - correct answer✔✔risk
|| || || || || || || || || || || ||
Examples of perils are_____? - correct answer✔✔fire, wind and lightning
|| || || || || || || || ||
,Indemnity insurance will _____? - correct answer✔✔restores insured to pre-loss condition
|| || || || || || || || || ||
The types of hazards are_____? - correct answer✔✔moral, morale, and physical
|| || || || || || || || || ||
________ is when people with a greater than average exposure to loss to purchase
|| || || || || || || || || || || || || ||
insurance. - correct answer✔✔Adverse selection || || || ||
Methods of handling risk are avoidance, reduction, retention, transfer and _____. - correct
|| || || || || || || || || || || || ||
answer✔✔Sharing (ARRTS) ||
Elements of insurable risk are calculable, affordable, non-catastrophic, homogenous,
|| || || || || || || || ||
accidental and _____. - correct answer✔✔Measurable (CANHAM) || || || || || ||
Myron, who is 16, signs a contract to lease a car. This would probably not be considered a
|| || || || || || || || || || || || || || || || || ||
valid contract under the law because _____. - correct answer✔✔He is not competent at 16.
|| || || || || || || || || || || || || ||
Ben bought an automobile four years ago for $15,000. Today it is worth $6,000. According to
|| || || || || || || || || || || || || || ||
the principle of indemnity, how much should Ben receive if the car is totally demolished? -
|| || || || || || || || || || || || || || || || ||
correct answer✔✔$6,000 ||
Harry Arne and his cousin each own 50% of a $160,000 duplex. Suppose Harry purchases
|| || || || || || || || || || || || || || ||
$160,000 of insurance on the home. If it burns to the ground, how much would Harry
|| || || || || || || || || || || || || || || ||
collect? - correct answer✔✔$80,000 || || ||
Under a unilateral contract, which parties are legally bound to perform under the contract?
|| || || || || || || || || || || || || ||
- correct answer✔✔Insurer only
|| || ||
Which part of an insurance policy describes the responsibilities and obligations of both the
|| || || || || || || || || || || || || ||
insurance company and the insured under the policy? - correct answer✔✔Conditions
|| || || || || || || || || ||
, The insuring agreement section of a policy describes the ____ you are insured against. -
|| || || || || || || || || || || || || || ||
correct answer✔✔perils ||
The elements of a valid contract are legal purpose, consideration, competent parties, and
|| || || || || || || || || || || || ||
_____. - correct answer✔✔Offer and acceptance
|| || || || ||
Both parties rely on statements made to each other when writing a contract. This is known
|| || || || || || || || || || || || || || || ||
as? - correct answer✔✔Utmost good faith
|| || || || ||
The limits of liability are found in which of the following sections of a casualty policy? -
|| || || || || || || || || || || || || || || || ||
correct answer✔✔Declarations ||
An insurance company issued a homeowners policy that included ambiguous language
|| || || || || || || || || || ||
regarding how a loss was settled. The insured sued the insurance company and won. The
|| || || || || || || || || || || || || || ||
judge stated that due to the ambiguous language in the contract the decision must be made
|| || || || || || || || || || || || || || || ||
in favor of the insured. The judge was basing this decision on which of the following types
|| || || || || || || || || || || || || || || || ||
of insurance contract? - correct answer✔✔Contract of adhesion
|| || || || || || ||
A policy may be amended only with a(n): - correct answer✔✔endorsement
|| || || || || || || || || ||
The procedure for resolving a disagreement between an insured and an insurance company
|| || || || || || || || || || || || ||
about a loss is described in which of the following parts of an insurance policy? - correct
|| || || || || || || || || || || || || || || || ||
answer✔✔Conditions
Who does a personal contract protect? - correct answer✔✔The individual who owns the
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property.
