Texas Public Adjuster License Exam (3-20) Prep – Real Practice
Questions, Answers & Detailed Rationales (Updated 2026) | Texas
Insurance Laws & TDI Regulations, Property & Casualty Claims Handling,
Policy Interpretation & Coverage Analysis, Claims Investigation &
Documentation, Loss Estimation & Settlement Negotiation, Insurance
Contracts, Ethics & Fraud Prevention, Adjuster Responsibilities & Real-
World Claims Scenarios
Question 1: Under the Texas Insurance Code, what is the primary purpose of the
Public Adjuster License (3-20)? A. To allow individuals to represent insurance
companies in claim negotiations B. To authorize licensed professionals to negotiate and
settle claims on behalf of policyholders C. To permit unlicensed contractors to file
claims for homeowners D. To grant authority to appraisers to determine policy limits
CORRECT ANSWER: B. To authorize licensed professionals to negotiate and settle
claims on behalf of policyholders
Rationale: The Texas 3-20 license specifically authorizes individuals to act as
advocates for insureds, negotiating and settling property insurance claims on their
behalf for compensation. It does not permit representation of insurers or unlicensed
claim filing.
Question 2: Which Texas statute primarily governs the Prompt Payment of Claims?
A. Texas Occupations Code Chapter 1101 B. Texas Insurance Code Chapter 541 C.
Texas Insurance Code Chapter 542 D. Texas Administrative Code Title 28, Part 1
CORRECT ANSWER: C. Texas Insurance Code Chapter 542
Rationale: Chapter 542 of the Texas Insurance Code, commonly known as the Prompt
Payment of Claims Act, establishes strict timelines for insurers to acknowledge,
investigate, and pay or deny claims, with penalties for unreasonable delays.
Question 3: When a policyholder assigns their claim benefits to a public adjuster,
what is required under Texas law? A. Verbal agreement witnessed by a third party B.
Written assignment that complies with specific statutory formatting requirements C.
Automatic assignment upon filing a claim D. Court order approving the assignment
CORRECT ANSWER: B. Written assignment that complies with specific statutory
formatting requirements
Rationale: Texas law mandates that assignments of insurance benefits be in writing,
contain specific disclosures, and meet formatting standards to protect consumers from
predatory practices and ensure informed consent.
Question 4: What is the maximum contingency fee percentage a public adjuster
may charge for claims related to a state-declared disaster in Texas? A. 10% of the
claim payment B. 15% of the claim payment C. 20% of the claim payment D. 25% of the
claim payment
,CORRECT ANSWER: A. 10% of the claim payment
Rationale: Texas law caps public adjuster fees at 10% of the claim payout for claims
arising from a state-declared disaster to prevent excessive charges during emergencies
when policyholders are vulnerable.
Question 5: Which of the following best defines Actual Cash Value (ACV) in Texas
property insurance claims? A. Replacement cost minus depreciation B. Market value
of the property at the time of sale C. Purchase price adjusted for inflation D.
Replacement cost plus installation fees
CORRECT ANSWER: A. Replacement cost minus depreciation
Rationale: ACV is universally calculated in Texas property insurance as the cost to
replace the damaged property with new materials of like kind and quality, minus
physical depreciation based on age, wear, and condition.
Question 6: Under Texas law, what must a public adjuster do before signing a
contract with a client? A. Provide a written disclosure of all fees, rights, and contract
terms B. Pay a licensing bond to the Texas Department of Insurance C. Obtain a notary
seal for the policyholder's signature D. Register the contract with the county clerk
CORRECT ANSWER: A. Provide a written disclosure of all fees, rights, and contract
terms
Rationale: Texas requires full written disclosure of fees, services, cancellation rights,
and other material terms before execution of a public adjusting contract to ensure
transparency and informed consumer consent.
Question 7: Which policy provision allows a policyholder to receive full
replacement cost only after actual repair or replacement is completed? A. Co-
insurance clause B. Recoverable depreciation provision C. Subrogation clause D.
Appraisal provision
CORRECT ANSWER: B. Recoverable depreciation provision
Rationale: The recoverable depreciation provision withholds depreciation from the
initial payment and releases it only upon proof of completed repair or replacement,
incentivizing policyholders to restore the property.
Question 8: What is the primary function of the Texas Department of Insurance
(TDI) in public adjusting regulation? A. To set premium rates for all property policies B.
To license, regulate, and enforce compliance for public adjusters C. To act as a guaranty
fund for all insurance claims D. To represent policyholders in litigation against insurers
CORRECT ANSWER: B. To license, regulate, and enforce compliance for public
adjusters
,Rationale: TDI oversees the licensing, continuing education, ethical conduct, and
disciplinary actions for public adjusters in Texas, ensuring consumer protection and
market integrity.
Question 9: Which of the following is a prohibited act for a Texas licensed public
adjuster? A. Charging a flat fee for consulting services B. Accepting compensation from
both the insured and the insurer for the same claim C. Providing a written estimate of
damages D. Attending a mediation with the policyholder
CORRECT ANSWER: B. Accepting compensation from both the insured and the
insurer for the same claim
Rationale: Dual compensation creates an irreconcilable conflict of interest and
violates Texas ethical standards, as a public adjuster must act solely in the insured's
interest.
Question 10: What is the standard timeframe for an insurer to accept or reject a
claim after receiving all required documentation in Texas? A. 5 business days B. 15
business days C. 30 calendar days D. 45 business days
CORRECT ANSWER: B. 15 business days
Rationale: Under Texas Insurance Code Chapter 542, insurers must accept or deny a
claim within 15 business days after receiving all items required for final determination,
unless an extension is properly communicated.
Question 11: In Texas, what triggers the appraisal clause in a homeowners policy?
A. Disagreement over the cause of loss B. Disagreement over the amount of loss C.
Failure to pay premiums on time D. Insurer's denial of coverage
CORRECT ANSWER: B. Disagreement over the amount of loss
Rationale: The appraisal clause is invoked when both parties agree on coverage but
disagree on the monetary value of the loss, requiring independent appraisers and an
umpire to determine the amount.
Question 12: Which of the following coverages is typically included in a Texas HO-A
policy? A. Flood damage from external rising water B. Windstorm and hail in designated
coastal areas C. Earthquake and ground shifting D. Nuclear hazard damage
CORRECT ANSWER: B. Windstorm and hail in designated coastal areas
Rationale: Texas HO-A policies (coastal dwelling policies) are specifically designed for
windstorm and hail coverage in designated counties, with flood coverage requiring
separate NFIP or private policies.
Question 13: What is the purpose of the Texas Windstorm Insurance Association
(TWIA)? A. To provide mandatory liability coverage for all coastal homeowners B. To
offer windstorm and hail insurance for properties in designated coastal counties C. To
, regulate premium rates for all Texas insurers D. To fund post-disaster rebuilding grants
for municipalities
CORRECT ANSWER: B. To offer windstorm and hail insurance for properties in
designated coastal counties
Rationale: TWIA is a state-created entity of last resort providing windstorm and hail
coverage in 14 coastal Texas counties where standard market coverage is limited or
unavailable.
Question 14: When calculating replacement cost for a commercial roof, which
factor is least relevant? A. Current market price of materials B. Labor rates in the
geographic area C. Historical purchase price from 20 years ago D. Building code
upgrade requirements
CORRECT ANSWER: C. Historical purchase price from 20 years ago
Rationale: Replacement cost reflects current costs to rebuild or replace with like kind
and quality at today's prices, making historical purchase prices irrelevant to current
valuation.
Question 15: Under Texas law, what is the cooling-off period for a public adjuster
contract? A. 24 hours B. 3 calendar days C. 5 business days D. 10 calendar days
CORRECT ANSWER: B. 3 calendar days
Rationale: Texas law grants policyholders a 3-calendar-day right to cancel a public
adjuster contract without penalty, protecting consumers from high-pressure sales and
ensuring informed decisions.
Question 16: Which document is typically required to prove ownership of personal
property damaged in a Texas homeowners claim? A. Property tax assessment B.
Purchase receipts or photographs C. Mortgage deed D. Utility bills
CORRECT ANSWER: B. Purchase receipts or photographs
Rationale: Purchase receipts, photographs, inventory lists, and similar documentation
establish proof of ownership, age, condition, and value for personal property claims.
Question 17: What is the legal consequence of an insurer acting in bad faith under
Texas Insurance Code Chapter 541? A. Automatic policy cancellation B. Potential
liability for actual damages, treble damages, and attorney fees C. Mandatory premium
refund for all policyholders D. Suspension of the insurer's license for 30 days
CORRECT ANSWER: B. Potential liability for actual damages, treble damages, and
attorney fees
Rationale: Chapter 541 (Deceptive Trade Practices) allows policyholders to recover
actual damages, with treble damages for knowing violations, plus court costs and
reasonable attorney fees.
Questions, Answers & Detailed Rationales (Updated 2026) | Texas
Insurance Laws & TDI Regulations, Property & Casualty Claims Handling,
Policy Interpretation & Coverage Analysis, Claims Investigation &
Documentation, Loss Estimation & Settlement Negotiation, Insurance
Contracts, Ethics & Fraud Prevention, Adjuster Responsibilities & Real-
World Claims Scenarios
Question 1: Under the Texas Insurance Code, what is the primary purpose of the
Public Adjuster License (3-20)? A. To allow individuals to represent insurance
companies in claim negotiations B. To authorize licensed professionals to negotiate and
settle claims on behalf of policyholders C. To permit unlicensed contractors to file
claims for homeowners D. To grant authority to appraisers to determine policy limits
CORRECT ANSWER: B. To authorize licensed professionals to negotiate and settle
claims on behalf of policyholders
Rationale: The Texas 3-20 license specifically authorizes individuals to act as
advocates for insureds, negotiating and settling property insurance claims on their
behalf for compensation. It does not permit representation of insurers or unlicensed
claim filing.
Question 2: Which Texas statute primarily governs the Prompt Payment of Claims?
A. Texas Occupations Code Chapter 1101 B. Texas Insurance Code Chapter 541 C.
Texas Insurance Code Chapter 542 D. Texas Administrative Code Title 28, Part 1
CORRECT ANSWER: C. Texas Insurance Code Chapter 542
Rationale: Chapter 542 of the Texas Insurance Code, commonly known as the Prompt
Payment of Claims Act, establishes strict timelines for insurers to acknowledge,
investigate, and pay or deny claims, with penalties for unreasonable delays.
Question 3: When a policyholder assigns their claim benefits to a public adjuster,
what is required under Texas law? A. Verbal agreement witnessed by a third party B.
Written assignment that complies with specific statutory formatting requirements C.
Automatic assignment upon filing a claim D. Court order approving the assignment
CORRECT ANSWER: B. Written assignment that complies with specific statutory
formatting requirements
Rationale: Texas law mandates that assignments of insurance benefits be in writing,
contain specific disclosures, and meet formatting standards to protect consumers from
predatory practices and ensure informed consent.
Question 4: What is the maximum contingency fee percentage a public adjuster
may charge for claims related to a state-declared disaster in Texas? A. 10% of the
claim payment B. 15% of the claim payment C. 20% of the claim payment D. 25% of the
claim payment
,CORRECT ANSWER: A. 10% of the claim payment
Rationale: Texas law caps public adjuster fees at 10% of the claim payout for claims
arising from a state-declared disaster to prevent excessive charges during emergencies
when policyholders are vulnerable.
Question 5: Which of the following best defines Actual Cash Value (ACV) in Texas
property insurance claims? A. Replacement cost minus depreciation B. Market value
of the property at the time of sale C. Purchase price adjusted for inflation D.
Replacement cost plus installation fees
CORRECT ANSWER: A. Replacement cost minus depreciation
Rationale: ACV is universally calculated in Texas property insurance as the cost to
replace the damaged property with new materials of like kind and quality, minus
physical depreciation based on age, wear, and condition.
Question 6: Under Texas law, what must a public adjuster do before signing a
contract with a client? A. Provide a written disclosure of all fees, rights, and contract
terms B. Pay a licensing bond to the Texas Department of Insurance C. Obtain a notary
seal for the policyholder's signature D. Register the contract with the county clerk
CORRECT ANSWER: A. Provide a written disclosure of all fees, rights, and contract
terms
Rationale: Texas requires full written disclosure of fees, services, cancellation rights,
and other material terms before execution of a public adjusting contract to ensure
transparency and informed consumer consent.
Question 7: Which policy provision allows a policyholder to receive full
replacement cost only after actual repair or replacement is completed? A. Co-
insurance clause B. Recoverable depreciation provision C. Subrogation clause D.
Appraisal provision
CORRECT ANSWER: B. Recoverable depreciation provision
Rationale: The recoverable depreciation provision withholds depreciation from the
initial payment and releases it only upon proof of completed repair or replacement,
incentivizing policyholders to restore the property.
Question 8: What is the primary function of the Texas Department of Insurance
(TDI) in public adjusting regulation? A. To set premium rates for all property policies B.
To license, regulate, and enforce compliance for public adjusters C. To act as a guaranty
fund for all insurance claims D. To represent policyholders in litigation against insurers
CORRECT ANSWER: B. To license, regulate, and enforce compliance for public
adjusters
,Rationale: TDI oversees the licensing, continuing education, ethical conduct, and
disciplinary actions for public adjusters in Texas, ensuring consumer protection and
market integrity.
Question 9: Which of the following is a prohibited act for a Texas licensed public
adjuster? A. Charging a flat fee for consulting services B. Accepting compensation from
both the insured and the insurer for the same claim C. Providing a written estimate of
damages D. Attending a mediation with the policyholder
CORRECT ANSWER: B. Accepting compensation from both the insured and the
insurer for the same claim
Rationale: Dual compensation creates an irreconcilable conflict of interest and
violates Texas ethical standards, as a public adjuster must act solely in the insured's
interest.
Question 10: What is the standard timeframe for an insurer to accept or reject a
claim after receiving all required documentation in Texas? A. 5 business days B. 15
business days C. 30 calendar days D. 45 business days
CORRECT ANSWER: B. 15 business days
Rationale: Under Texas Insurance Code Chapter 542, insurers must accept or deny a
claim within 15 business days after receiving all items required for final determination,
unless an extension is properly communicated.
Question 11: In Texas, what triggers the appraisal clause in a homeowners policy?
A. Disagreement over the cause of loss B. Disagreement over the amount of loss C.
Failure to pay premiums on time D. Insurer's denial of coverage
CORRECT ANSWER: B. Disagreement over the amount of loss
Rationale: The appraisal clause is invoked when both parties agree on coverage but
disagree on the monetary value of the loss, requiring independent appraisers and an
umpire to determine the amount.
Question 12: Which of the following coverages is typically included in a Texas HO-A
policy? A. Flood damage from external rising water B. Windstorm and hail in designated
coastal areas C. Earthquake and ground shifting D. Nuclear hazard damage
CORRECT ANSWER: B. Windstorm and hail in designated coastal areas
Rationale: Texas HO-A policies (coastal dwelling policies) are specifically designed for
windstorm and hail coverage in designated counties, with flood coverage requiring
separate NFIP or private policies.
Question 13: What is the purpose of the Texas Windstorm Insurance Association
(TWIA)? A. To provide mandatory liability coverage for all coastal homeowners B. To
offer windstorm and hail insurance for properties in designated coastal counties C. To
, regulate premium rates for all Texas insurers D. To fund post-disaster rebuilding grants
for municipalities
CORRECT ANSWER: B. To offer windstorm and hail insurance for properties in
designated coastal counties
Rationale: TWIA is a state-created entity of last resort providing windstorm and hail
coverage in 14 coastal Texas counties where standard market coverage is limited or
unavailable.
Question 14: When calculating replacement cost for a commercial roof, which
factor is least relevant? A. Current market price of materials B. Labor rates in the
geographic area C. Historical purchase price from 20 years ago D. Building code
upgrade requirements
CORRECT ANSWER: C. Historical purchase price from 20 years ago
Rationale: Replacement cost reflects current costs to rebuild or replace with like kind
and quality at today's prices, making historical purchase prices irrelevant to current
valuation.
Question 15: Under Texas law, what is the cooling-off period for a public adjuster
contract? A. 24 hours B. 3 calendar days C. 5 business days D. 10 calendar days
CORRECT ANSWER: B. 3 calendar days
Rationale: Texas law grants policyholders a 3-calendar-day right to cancel a public
adjuster contract without penalty, protecting consumers from high-pressure sales and
ensuring informed decisions.
Question 16: Which document is typically required to prove ownership of personal
property damaged in a Texas homeowners claim? A. Property tax assessment B.
Purchase receipts or photographs C. Mortgage deed D. Utility bills
CORRECT ANSWER: B. Purchase receipts or photographs
Rationale: Purchase receipts, photographs, inventory lists, and similar documentation
establish proof of ownership, age, condition, and value for personal property claims.
Question 17: What is the legal consequence of an insurer acting in bad faith under
Texas Insurance Code Chapter 541? A. Automatic policy cancellation B. Potential
liability for actual damages, treble damages, and attorney fees C. Mandatory premium
refund for all policyholders D. Suspension of the insurer's license for 30 days
CORRECT ANSWER: B. Potential liability for actual damages, treble damages, and
attorney fees
Rationale: Chapter 541 (Deceptive Trade Practices) allows policyholders to recover
actual damages, with treble damages for knowing violations, plus court costs and
reasonable attorney fees.
