Texas Surplus Lines Exam prep |Questions &
Verified Answers & Rationales | 2025/2026 | Latest
Update | Instant Download !!
1. What is the primary purpose of the Texas Surplus Lines insurance market?
A. To provide standard coverage to all consumers
B. To provide insurance for risks not covered by admitted carriers (correct
answer)
C. To regulate admitted insurance companies
D. To eliminate risk from high-risk industries
Rationale: Surplus lines insurers provide coverage for unique, high-risk, or unusual
exposures that standard admitted insurers may not cover.
2. Who is allowed to place insurance with a surplus lines insurer in Texas?
A. Any consumer directly
B. Licensed surplus lines agents or brokers (correct answer)
C. Only admitted carriers
D. Any insurance agent
Rationale: Only licensed surplus lines agents or brokers can legally place coverage
with non-admitted insurers.
3. Which of the following best describes a “non-admitted” insurer?
A. Licensed and regulated by Texas Department of Insurance
B. Only provides life insurance
C. Not licensed in Texas but approved to write surplus lines insurance (correct
,answer)
D. Cannot legally sell insurance in Texas
Rationale: Non-admitted insurers are not licensed but may provide surplus lines
coverage with proper authorization.
4. What must a surplus lines agent do before placing coverage with a non-
admitted insurer?
A. Offer the cheapest available policy
B. Conduct a diligent search to determine if coverage is unavailable from
admitted carriers (correct answer)
C. Only contact one admitted insurer
D. Place coverage without documentation
Rationale: Texas law requires evidence that coverage cannot be obtained from
admitted insurers before using surplus lines.
5. Which type of risk is typically placed in the surplus lines market?
A. Standard homeowner policies
B. Standard auto insurance
C. High-risk or unusual exposures (correct answer)
D. Life insurance for young adults
Rationale: Surplus lines markets handle risks that admitted insurers are unwilling to
cover.
6. What is a common characteristic of surplus lines insurance policies?
A. Guaranteed rates by law
B. Standardized forms
,C. Flexible terms and conditions (correct answer)
D. Only for personal lines
Rationale: Surplus lines insurers often tailor coverage for unique or high-risk
situations, resulting in flexible terms.
7. Who regulates surplus lines insurance in Texas?
A. Federal Insurance Office
B. Internal Revenue Service
C. Texas Department of Insurance (correct answer)
D. National Association of Insurance Commissioners
Rationale: The Texas Department of Insurance oversees licensing, compliance, and
regulations for surplus lines.
8. What is the purpose of the “diligent search” requirement?
A. To find the cheapest policy
B. To verify the applicant’s credit score
C. To ensure coverage cannot be obtained from admitted insurers (correct
answer)
D. To report claims immediately
Rationale: A diligent search protects consumers and ensures surplus lines are used
only when necessary.
9. Which document must a surplus lines agent maintain as proof of a diligent
search?
A. Claim form
B. Surplus Lines Affidavit or Coverage Search Documentation (correct answer)
, C. Insurance certificate only
D. Policyholder’s personal records
Rationale: Documentation of efforts to place coverage with admitted insurers is
required for compliance.
10. How are surplus lines premiums taxed in Texas?
A. Not taxed at all
B. Subject to Texas surplus lines tax and stamping fees (correct answer)
C. Only federal tax applies
D. Premiums are returned to the agent
Rationale: Surplus lines premiums are subject to state surplus lines tax and fees for
regulatory purposes.
11. What is a stamping fee?
A. A federal regulatory fee
B. A fee for mailing policies
C. A fee paid to the Texas Department of Insurance for processing surplus lines
filings (correct answer)
D. A surcharge charged by the insurer
Rationale: Stamping fees fund the administration of surplus lines compliance in
Texas.
12. Which is true about surplus lines coverage cancellation?
A. Surplus lines policies cannot be canceled
B. Cancellation provisions are defined in the policy and may differ from
admitted policies (correct answer)
Verified Answers & Rationales | 2025/2026 | Latest
Update | Instant Download !!
1. What is the primary purpose of the Texas Surplus Lines insurance market?
A. To provide standard coverage to all consumers
B. To provide insurance for risks not covered by admitted carriers (correct
answer)
C. To regulate admitted insurance companies
D. To eliminate risk from high-risk industries
Rationale: Surplus lines insurers provide coverage for unique, high-risk, or unusual
exposures that standard admitted insurers may not cover.
2. Who is allowed to place insurance with a surplus lines insurer in Texas?
A. Any consumer directly
B. Licensed surplus lines agents or brokers (correct answer)
C. Only admitted carriers
D. Any insurance agent
Rationale: Only licensed surplus lines agents or brokers can legally place coverage
with non-admitted insurers.
3. Which of the following best describes a “non-admitted” insurer?
A. Licensed and regulated by Texas Department of Insurance
B. Only provides life insurance
C. Not licensed in Texas but approved to write surplus lines insurance (correct
,answer)
D. Cannot legally sell insurance in Texas
Rationale: Non-admitted insurers are not licensed but may provide surplus lines
coverage with proper authorization.
4. What must a surplus lines agent do before placing coverage with a non-
admitted insurer?
A. Offer the cheapest available policy
B. Conduct a diligent search to determine if coverage is unavailable from
admitted carriers (correct answer)
C. Only contact one admitted insurer
D. Place coverage without documentation
Rationale: Texas law requires evidence that coverage cannot be obtained from
admitted insurers before using surplus lines.
5. Which type of risk is typically placed in the surplus lines market?
A. Standard homeowner policies
B. Standard auto insurance
C. High-risk or unusual exposures (correct answer)
D. Life insurance for young adults
Rationale: Surplus lines markets handle risks that admitted insurers are unwilling to
cover.
6. What is a common characteristic of surplus lines insurance policies?
A. Guaranteed rates by law
B. Standardized forms
,C. Flexible terms and conditions (correct answer)
D. Only for personal lines
Rationale: Surplus lines insurers often tailor coverage for unique or high-risk
situations, resulting in flexible terms.
7. Who regulates surplus lines insurance in Texas?
A. Federal Insurance Office
B. Internal Revenue Service
C. Texas Department of Insurance (correct answer)
D. National Association of Insurance Commissioners
Rationale: The Texas Department of Insurance oversees licensing, compliance, and
regulations for surplus lines.
8. What is the purpose of the “diligent search” requirement?
A. To find the cheapest policy
B. To verify the applicant’s credit score
C. To ensure coverage cannot be obtained from admitted insurers (correct
answer)
D. To report claims immediately
Rationale: A diligent search protects consumers and ensures surplus lines are used
only when necessary.
9. Which document must a surplus lines agent maintain as proof of a diligent
search?
A. Claim form
B. Surplus Lines Affidavit or Coverage Search Documentation (correct answer)
, C. Insurance certificate only
D. Policyholder’s personal records
Rationale: Documentation of efforts to place coverage with admitted insurers is
required for compliance.
10. How are surplus lines premiums taxed in Texas?
A. Not taxed at all
B. Subject to Texas surplus lines tax and stamping fees (correct answer)
C. Only federal tax applies
D. Premiums are returned to the agent
Rationale: Surplus lines premiums are subject to state surplus lines tax and fees for
regulatory purposes.
11. What is a stamping fee?
A. A federal regulatory fee
B. A fee for mailing policies
C. A fee paid to the Texas Department of Insurance for processing surplus lines
filings (correct answer)
D. A surcharge charged by the insurer
Rationale: Stamping fees fund the administration of surplus lines compliance in
Texas.
12. Which is true about surplus lines coverage cancellation?
A. Surplus lines policies cannot be canceled
B. Cancellation provisions are defined in the policy and may differ from
admitted policies (correct answer)
