Texas Public Adjuster License Exam (3-20)
Practice Questions and Answers Updated 2026
| Complete Texas 3-20 Insurance Adjuster
Study Guide with Verified Questions, Detailed
Rationales, Property Claims Handling,
Insurance Law, Policy Interpretation, Liability
Assessment, Negotiation Skills, Ethical
Standards, Texas Department of Insurance
(TDI) Rules & Licensing Exam Prep
Question 1: Under Texas Insurance Code Chapter 4102, which of the following is a
mandatory requirement for a public insurance adjuster before entering into a
contract with an insured?
A. Obtaining verbal consent from the insurer
B. Providing a written contract executed by the insured or their authorized
representative
C. Receiving advance payment of at least 50% of the estimated commission
D. Filing the contract with the Texas Department of Insurance within 48 hours
CORRECT ANSWER: B. Providing a written contract executed by the insured or their
authorized representative
Rationale: Texas Insurance Code §4102.101 and Texas Administrative Code §19.708(a)
require that a public insurance adjuster must enter into a written contract executed by
the insured or the insured's duly authorized representative before acting as a public
adjuster. This contract must contain specific disclosures and cannot be executed within
72 hours of a catastrophic event declaration unless specific exceptions apply. Verbal
consent, advance payment requirements, or filing timelines do not satisfy this statutory
prerequisite.
Question 2: Which valuation method calculates the cost to repair or replace
damaged property with materials of like kind and quality, without deduction for
depreciation?
A. Actual Cash Value
B. Fair Market Value
C. Replacement Cost
D. Stated Value
CORRECT ANSWER: C. Replacement Cost
Rationale: Replacement Cost is defined as the amount necessary to repair or replace
damaged property with new materials of like kind and quality, without deduction for
depreciation. Actual Cash Value (Option A) typically equals replacement cost minus
depreciation. Fair Market Value (Option B) reflects what a willing buyer would pay a
,willing seller in an open market. Stated Value (Option D) is a pre-agreed amount
specified in the policy, often used for unique items.
Question 3: In the context of property insurance, what does the term "proximate
cause" refer to?
A. The most recent event in a chain of events leading to a loss
B. The dominant, efficient, or direct cause of a loss, regardless of when it occurred
C. Any contributing factor that played a minor role in causing damage
D. The cause that is explicitly excluded under the policy terms
CORRECT ANSWER: B. The dominant, efficient, or direct cause of a loss, regardless
of when it occurred
Rationale: Proximate cause is a foundational insurance principle meaning the
predominant, direct, or efficient cause of a loss—the one that sets other events in
motion. It is not necessarily the most recent event (Option A) nor a minor contributing
factor (Option C). While policy exclusions (Option D) may bar coverage for certain
proximate causes, the definition itself focuses on causal efficiency, not policy language.
Question 4: According to Texas Administrative Code §19.713, which of the following
actions by a public insurance adjuster would constitute an ethical violation?
A. Providing the insured with a copy of the signed contract within 24 hours
B. Accepting compensation from both the insured and the insurer for the same claim
without full written disclosure and consent
C. Recommending a reputable contractor to assist with repairs
D. Charging a contingency fee based on the amount of the claim settlement
CORRECT ANSWER: B. Accepting compensation from both the insured and the
insurer for the same claim without full written disclosure and consent
Rationale: Texas Administrative Code §19.713(b)(4) prohibits a public adjuster from
accepting compensation from more than one party for the same claim unless there is
full written disclosure to and written consent from all parties involved. Options A, C, and
D describe permissible activities when conducted in compliance with applicable rules;
contingency fees are generally allowed if disclosed in the contract per §19.708.
Question 5: Which homeowners insurance form provides the broadest coverage for
the dwelling, covering all risks except those specifically excluded?
A. HO-2 (Broad Form)
B. HO-3 (Special Form)
C. HO-4 (Renters Form)
D. HO-8 (Modified Coverage Form)
CORRECT ANSWER: B. HO-3 (Special Form)
Rationale: The HO-3 Special Form provides "open perils" or "all-risk" coverage for the
dwelling structure, meaning it covers all causes of loss except those explicitly excluded
,in the policy. HO-2 (Option A) provides named-perils coverage for both dwelling and
contents. HO-4 (Option C) is designed for renters and covers personal property only.
HO-8 (Option D) offers modified coverage for older homes, typically on a named-perils
basis with actual cash value settlements.
Question 6: Under the Standard Fire Policy in Texas, what is the typical time limit
for an insured to submit a sworn proof of loss after a fire?
A. 30 days
B. 60 days
C. 90 days
D. 120 days
CORRECT ANSWER: B. 60 days
Rationale: The Texas Standard Fire Policy, which forms the basis for many property
insurance contracts, generally requires the insured to submit a sworn proof of loss
within 60 days after the loss, unless the insurer grants a written extension. This
timeframe is consistent with industry standards and statutory requirements to ensure
timely claim investigation while allowing the insured reasonable time to compile
documentation.
Question 7: What is the primary purpose of the appraisal clause found in most
property insurance policies?
A. To determine legal liability for the loss
B. To resolve disputes between the insured and insurer regarding the amount of loss
C. To establish the cause of loss for coverage determination
D. To calculate the insurer's subrogation rights against third parties
CORRECT ANSWER: B. To resolve disputes between the insured and insurer
regarding the amount of loss
Rationale: The appraisal clause is a dispute resolution mechanism designed to resolve
disagreements about the value or amount of a covered loss, not coverage questions or
liability. Each party selects an appraiser; if they disagree, an umpire is appointed. The
resulting award is binding on the amount of loss. It does not determine coverage (Option
C), legal liability (Option A), or subrogation rights (Option D).
Question 8: Which of the following best describes "moral hazard" in insurance
underwriting?
A. A physical condition that increases the likelihood of a loss, such as faulty wiring
B. A careless attitude toward risk that increases the chance of loss, such as leaving
doors unlocked
C. A character trait indicating dishonesty or intent to cause a loss for financial gain
D. A legal doctrine that prevents an insurer from denying coverage after accepting
premiums
, CORRECT ANSWER: C. A character trait indicating dishonesty or intent to cause a
loss for financial gain
Rationale: Moral hazard refers to the increased risk of loss due to an insured's
dishonest character or intent to profit from a claim, such as arson or fraud. Option B
describes "morale hazard" (carelessness). Option A describes a "physical hazard."
Option D refers to "waiver" or "estoppel," not hazard classification.
Question 9: In Texas, what is the minimum surety bond amount required for an
individual public insurance adjuster license?
A. $5,000
B. $10,000
C. $25,000
D. $50,000
CORRECT ANSWER: B. $10,000
Rationale: Texas Administrative Code §19.705 and Texas Insurance Code §4102.103
require individual public insurance adjusters to file and maintain a surety bond in the
amount of $10,000 as a condition of licensure. This bond protects consumers against
fraudulent or unethical conduct by the adjuster. The $50,000 figure (Option D) may
apply to certain agency licenses or other states, but not Texas individual adjusters.
Question 10: Which endorsement to a homeowners policy would provide coverage
for water backup from sewers or drains?
A. Ordinance or Law Coverage
B. Water Backup Endorsement
C. Extended Replacement Cost
D. Personal Property Replacement Cost
CORRECT ANSWER: B. Water Backup Endorsement
Rationale: Standard homeowners policies (HO-3, etc.) typically exclude damage
caused by water or sewage that backs up through sewers or drains. A Water Backup
Endorsement (sometimes called Sewer Backup Coverage) can be added to provide this
protection, usually up to a specified sub-limit. Ordinance or Law (Option A) covers
increased costs due to building code upgrades. Extended Replacement Cost (Option C)
increases dwelling coverage limits. Personal Property Replacement Cost (Option D)
changes valuation method for contents.
Question 11: Under Texas law, what is the maximum contingency fee percentage a
public adjuster may charge for claims arising from a catastrophe declared by the
governor?
A. 5%
B. 10%
Practice Questions and Answers Updated 2026
| Complete Texas 3-20 Insurance Adjuster
Study Guide with Verified Questions, Detailed
Rationales, Property Claims Handling,
Insurance Law, Policy Interpretation, Liability
Assessment, Negotiation Skills, Ethical
Standards, Texas Department of Insurance
(TDI) Rules & Licensing Exam Prep
Question 1: Under Texas Insurance Code Chapter 4102, which of the following is a
mandatory requirement for a public insurance adjuster before entering into a
contract with an insured?
A. Obtaining verbal consent from the insurer
B. Providing a written contract executed by the insured or their authorized
representative
C. Receiving advance payment of at least 50% of the estimated commission
D. Filing the contract with the Texas Department of Insurance within 48 hours
CORRECT ANSWER: B. Providing a written contract executed by the insured or their
authorized representative
Rationale: Texas Insurance Code §4102.101 and Texas Administrative Code §19.708(a)
require that a public insurance adjuster must enter into a written contract executed by
the insured or the insured's duly authorized representative before acting as a public
adjuster. This contract must contain specific disclosures and cannot be executed within
72 hours of a catastrophic event declaration unless specific exceptions apply. Verbal
consent, advance payment requirements, or filing timelines do not satisfy this statutory
prerequisite.
Question 2: Which valuation method calculates the cost to repair or replace
damaged property with materials of like kind and quality, without deduction for
depreciation?
A. Actual Cash Value
B. Fair Market Value
C. Replacement Cost
D. Stated Value
CORRECT ANSWER: C. Replacement Cost
Rationale: Replacement Cost is defined as the amount necessary to repair or replace
damaged property with new materials of like kind and quality, without deduction for
depreciation. Actual Cash Value (Option A) typically equals replacement cost minus
depreciation. Fair Market Value (Option B) reflects what a willing buyer would pay a
,willing seller in an open market. Stated Value (Option D) is a pre-agreed amount
specified in the policy, often used for unique items.
Question 3: In the context of property insurance, what does the term "proximate
cause" refer to?
A. The most recent event in a chain of events leading to a loss
B. The dominant, efficient, or direct cause of a loss, regardless of when it occurred
C. Any contributing factor that played a minor role in causing damage
D. The cause that is explicitly excluded under the policy terms
CORRECT ANSWER: B. The dominant, efficient, or direct cause of a loss, regardless
of when it occurred
Rationale: Proximate cause is a foundational insurance principle meaning the
predominant, direct, or efficient cause of a loss—the one that sets other events in
motion. It is not necessarily the most recent event (Option A) nor a minor contributing
factor (Option C). While policy exclusions (Option D) may bar coverage for certain
proximate causes, the definition itself focuses on causal efficiency, not policy language.
Question 4: According to Texas Administrative Code §19.713, which of the following
actions by a public insurance adjuster would constitute an ethical violation?
A. Providing the insured with a copy of the signed contract within 24 hours
B. Accepting compensation from both the insured and the insurer for the same claim
without full written disclosure and consent
C. Recommending a reputable contractor to assist with repairs
D. Charging a contingency fee based on the amount of the claim settlement
CORRECT ANSWER: B. Accepting compensation from both the insured and the
insurer for the same claim without full written disclosure and consent
Rationale: Texas Administrative Code §19.713(b)(4) prohibits a public adjuster from
accepting compensation from more than one party for the same claim unless there is
full written disclosure to and written consent from all parties involved. Options A, C, and
D describe permissible activities when conducted in compliance with applicable rules;
contingency fees are generally allowed if disclosed in the contract per §19.708.
Question 5: Which homeowners insurance form provides the broadest coverage for
the dwelling, covering all risks except those specifically excluded?
A. HO-2 (Broad Form)
B. HO-3 (Special Form)
C. HO-4 (Renters Form)
D. HO-8 (Modified Coverage Form)
CORRECT ANSWER: B. HO-3 (Special Form)
Rationale: The HO-3 Special Form provides "open perils" or "all-risk" coverage for the
dwelling structure, meaning it covers all causes of loss except those explicitly excluded
,in the policy. HO-2 (Option A) provides named-perils coverage for both dwelling and
contents. HO-4 (Option C) is designed for renters and covers personal property only.
HO-8 (Option D) offers modified coverage for older homes, typically on a named-perils
basis with actual cash value settlements.
Question 6: Under the Standard Fire Policy in Texas, what is the typical time limit
for an insured to submit a sworn proof of loss after a fire?
A. 30 days
B. 60 days
C. 90 days
D. 120 days
CORRECT ANSWER: B. 60 days
Rationale: The Texas Standard Fire Policy, which forms the basis for many property
insurance contracts, generally requires the insured to submit a sworn proof of loss
within 60 days after the loss, unless the insurer grants a written extension. This
timeframe is consistent with industry standards and statutory requirements to ensure
timely claim investigation while allowing the insured reasonable time to compile
documentation.
Question 7: What is the primary purpose of the appraisal clause found in most
property insurance policies?
A. To determine legal liability for the loss
B. To resolve disputes between the insured and insurer regarding the amount of loss
C. To establish the cause of loss for coverage determination
D. To calculate the insurer's subrogation rights against third parties
CORRECT ANSWER: B. To resolve disputes between the insured and insurer
regarding the amount of loss
Rationale: The appraisal clause is a dispute resolution mechanism designed to resolve
disagreements about the value or amount of a covered loss, not coverage questions or
liability. Each party selects an appraiser; if they disagree, an umpire is appointed. The
resulting award is binding on the amount of loss. It does not determine coverage (Option
C), legal liability (Option A), or subrogation rights (Option D).
Question 8: Which of the following best describes "moral hazard" in insurance
underwriting?
A. A physical condition that increases the likelihood of a loss, such as faulty wiring
B. A careless attitude toward risk that increases the chance of loss, such as leaving
doors unlocked
C. A character trait indicating dishonesty or intent to cause a loss for financial gain
D. A legal doctrine that prevents an insurer from denying coverage after accepting
premiums
, CORRECT ANSWER: C. A character trait indicating dishonesty or intent to cause a
loss for financial gain
Rationale: Moral hazard refers to the increased risk of loss due to an insured's
dishonest character or intent to profit from a claim, such as arson or fraud. Option B
describes "morale hazard" (carelessness). Option A describes a "physical hazard."
Option D refers to "waiver" or "estoppel," not hazard classification.
Question 9: In Texas, what is the minimum surety bond amount required for an
individual public insurance adjuster license?
A. $5,000
B. $10,000
C. $25,000
D. $50,000
CORRECT ANSWER: B. $10,000
Rationale: Texas Administrative Code §19.705 and Texas Insurance Code §4102.103
require individual public insurance adjusters to file and maintain a surety bond in the
amount of $10,000 as a condition of licensure. This bond protects consumers against
fraudulent or unethical conduct by the adjuster. The $50,000 figure (Option D) may
apply to certain agency licenses or other states, but not Texas individual adjusters.
Question 10: Which endorsement to a homeowners policy would provide coverage
for water backup from sewers or drains?
A. Ordinance or Law Coverage
B. Water Backup Endorsement
C. Extended Replacement Cost
D. Personal Property Replacement Cost
CORRECT ANSWER: B. Water Backup Endorsement
Rationale: Standard homeowners policies (HO-3, etc.) typically exclude damage
caused by water or sewage that backs up through sewers or drains. A Water Backup
Endorsement (sometimes called Sewer Backup Coverage) can be added to provide this
protection, usually up to a specified sub-limit. Ordinance or Law (Option A) covers
increased costs due to building code upgrades. Extended Replacement Cost (Option C)
increases dwelling coverage limits. Personal Property Replacement Cost (Option D)
changes valuation method for contents.
Question 11: Under Texas law, what is the maximum contingency fee percentage a
public adjuster may charge for claims arising from a catastrophe declared by the
governor?
A. 5%
B. 10%
