Texas Property and Casualty Exam
ACTUAL EXAM 2026/2027 | Property
Casualty Insurance | Verified Q&A | Pass
Guaranteed - A+ Graded
Section 1: Insurance Basics & Risk Management (15 Questions)
Q1: A business owner installs sprinkler systems and fire alarms to reduce potential fire damage. This
represents which risk management technique?
A. Risk avoidance
B. Risk reduction [CORRECT]
C. Risk retention
D. Risk transfer
Correct Answer: B
Rationale: Risk reduction involves implementing measures that decrease the frequency or severity of
potential losses; fire prevention systems reduce the severity of fire damage without eliminating the risk
entirely.
Q2: The principle of indemnity ensures that:
A. The insured profits from a loss
B. The insured is restored to the same financial position after a loss as before, without profit [CORRECT]
C. The insurer pays double the loss amount
D. The insured receives replacement cost regardless of actual cash value
Correct Answer: B
Rationale: Indemnity prevents the insured from profiting from a loss by limiting recovery to the actual
economic loss sustained, ensuring insurance serves its purpose of financial restoration rather than gain.
Q3: An applicant for property insurance intentionally conceals that the building has aluminum wiring
known to cause fires. This violates the principle of:
,A. Insurable interest
B. Utmost good faith (uberrimae fidei) [CORRECT]
C. Subrogation
D. Warranties
Correct Answer: B
Rationale: Utmost good faith requires both parties to disclose all material facts; intentional concealment
of known hazards constitutes fraudulent misrepresentation and can void the policy.
Q4: Subrogation allows the insurer to:
A. Cancel the policy at any time
B. Pursue recovery from a negligent third party after paying the insured [CORRECT]
C. Increase premiums after a claim
D. Deny all claims automatically
Correct Answer: B
Rationale: Subrogation transfers the insured's right to recover damages from responsible third parties
to the insurer after claim payment, preventing double recovery and holding negligent parties
accountable.
Q5: Which element is required for a valid insurance contract?
A. The insured must suffer a loss immediately
B. Offer and acceptance, consideration, competent parties, and legal purpose [CORRECT]
C. The contract must be oral
D. No consideration is necessary
Correct Answer: B
Rationale: Insurance contracts, like all contracts, require offer and acceptance, consideration (premium
payments), legally competent parties, and lawful purpose to be enforceable.
Q6: A property owner has an HO-3 policy with a $250,000 dwelling limit and a $1,000 deductible. The
home suffers $50,000 in covered fire damage. The insurer pays:
A. $50,000
B. $49,000 [CORRECT]
C. $250,000
D. $1,000
,Correct Answer:
Rationale: The insurer indemnifies for the covered loss amount minus the deductible the insured must
pay out-of-pocket; $50,000 loss minus $1,000 deductible equals $49,000 claim payment.
Q7: Actual cash value (ACV) is calculated as:
A. Replacement cost plus depreciation
B. Replacement cost minus depreciation [CORRECT]
C. Market value only
D. Agreed value regardless of condition
Correct Answer: B
Rationale: Actual cash value represents the cost to replace damaged property minus depreciation for
age, wear, and obsolescence, reflecting the property's value at the time of loss.
Q8: A warranty in an insurance policy is:
A. A suggestion for safety
B. A material promise or guarantee that must be strictly true [CORRECT]
C. An optional coverage
D. A deductible amount
Correct Answer: B
Rationale: Warranties are strict promises made by the insured that must be literally true; breach of
warranty can void coverage regardless of whether the breach caused the loss.
Q9: The deductible in a property policy serves to:
A. Increase insurer profits only
B. Eliminate small claims and reduce premiums by sharing risk with insured [CORRECT]
C. Prevent all claims
D. Double the coverage amount
Correct Answer: B
Rationale: Deductibles reduce administrative costs for small claims, discourage frivolous claims, and
share risk between insurer and insured, resulting in lower premium costs for policyholders.
Q10: Which type of hazard results from personal characteristics or behavior?
, A. Physical hazard
B. Moral hazard [CORRECT]
C. Natural hazard
D. Legal hazard
Correct Answer: B
Rationale: Moral hazard refers to increased risk due to personal attitudes, dishonesty, or careless
behavior; physical hazards are tangible conditions, while morale hazards involve indifference to loss due
to insurance protection.
Q11: An insured has two policies covering the same property. The loss settlement provision that
prevents recovery exceeding the loss is:
A. Primary and excess
B. Pro rata liability
C. Other insurance clause [CORRECT]
D. Non-concurrency
Correct Answer: C
Rationale: The other insurance clause establishes how multiple policies covering the same loss will share
payment, preventing the insured from profiting through duplicate coverage.
Q12: A representation in insurance is:
A. A guarantee written in the policy
B. A statement believed to be true to the best of the applicant's knowledge [CORRECT]
C. A promise that never changes
D. A physical inspection
Correct Answer: B
Rationale: Representations are statements made during application that are believed true but not
guaranteed; unlike warranties, innocent misrepresentations may not void coverage unless material to
the risk.
Q13: Risk retention is most appropriate when:
A. The potential loss is catastrophic and unaffordable
B. The potential loss is small, predictable, and less costly than insurance premiums [CORRECT]
C. The law requires insurance
D. A mortgage lender requires coverage
ACTUAL EXAM 2026/2027 | Property
Casualty Insurance | Verified Q&A | Pass
Guaranteed - A+ Graded
Section 1: Insurance Basics & Risk Management (15 Questions)
Q1: A business owner installs sprinkler systems and fire alarms to reduce potential fire damage. This
represents which risk management technique?
A. Risk avoidance
B. Risk reduction [CORRECT]
C. Risk retention
D. Risk transfer
Correct Answer: B
Rationale: Risk reduction involves implementing measures that decrease the frequency or severity of
potential losses; fire prevention systems reduce the severity of fire damage without eliminating the risk
entirely.
Q2: The principle of indemnity ensures that:
A. The insured profits from a loss
B. The insured is restored to the same financial position after a loss as before, without profit [CORRECT]
C. The insurer pays double the loss amount
D. The insured receives replacement cost regardless of actual cash value
Correct Answer: B
Rationale: Indemnity prevents the insured from profiting from a loss by limiting recovery to the actual
economic loss sustained, ensuring insurance serves its purpose of financial restoration rather than gain.
Q3: An applicant for property insurance intentionally conceals that the building has aluminum wiring
known to cause fires. This violates the principle of:
,A. Insurable interest
B. Utmost good faith (uberrimae fidei) [CORRECT]
C. Subrogation
D. Warranties
Correct Answer: B
Rationale: Utmost good faith requires both parties to disclose all material facts; intentional concealment
of known hazards constitutes fraudulent misrepresentation and can void the policy.
Q4: Subrogation allows the insurer to:
A. Cancel the policy at any time
B. Pursue recovery from a negligent third party after paying the insured [CORRECT]
C. Increase premiums after a claim
D. Deny all claims automatically
Correct Answer: B
Rationale: Subrogation transfers the insured's right to recover damages from responsible third parties
to the insurer after claim payment, preventing double recovery and holding negligent parties
accountable.
Q5: Which element is required for a valid insurance contract?
A. The insured must suffer a loss immediately
B. Offer and acceptance, consideration, competent parties, and legal purpose [CORRECT]
C. The contract must be oral
D. No consideration is necessary
Correct Answer: B
Rationale: Insurance contracts, like all contracts, require offer and acceptance, consideration (premium
payments), legally competent parties, and lawful purpose to be enforceable.
Q6: A property owner has an HO-3 policy with a $250,000 dwelling limit and a $1,000 deductible. The
home suffers $50,000 in covered fire damage. The insurer pays:
A. $50,000
B. $49,000 [CORRECT]
C. $250,000
D. $1,000
,Correct Answer:
Rationale: The insurer indemnifies for the covered loss amount minus the deductible the insured must
pay out-of-pocket; $50,000 loss minus $1,000 deductible equals $49,000 claim payment.
Q7: Actual cash value (ACV) is calculated as:
A. Replacement cost plus depreciation
B. Replacement cost minus depreciation [CORRECT]
C. Market value only
D. Agreed value regardless of condition
Correct Answer: B
Rationale: Actual cash value represents the cost to replace damaged property minus depreciation for
age, wear, and obsolescence, reflecting the property's value at the time of loss.
Q8: A warranty in an insurance policy is:
A. A suggestion for safety
B. A material promise or guarantee that must be strictly true [CORRECT]
C. An optional coverage
D. A deductible amount
Correct Answer: B
Rationale: Warranties are strict promises made by the insured that must be literally true; breach of
warranty can void coverage regardless of whether the breach caused the loss.
Q9: The deductible in a property policy serves to:
A. Increase insurer profits only
B. Eliminate small claims and reduce premiums by sharing risk with insured [CORRECT]
C. Prevent all claims
D. Double the coverage amount
Correct Answer: B
Rationale: Deductibles reduce administrative costs for small claims, discourage frivolous claims, and
share risk between insurer and insured, resulting in lower premium costs for policyholders.
Q10: Which type of hazard results from personal characteristics or behavior?
, A. Physical hazard
B. Moral hazard [CORRECT]
C. Natural hazard
D. Legal hazard
Correct Answer: B
Rationale: Moral hazard refers to increased risk due to personal attitudes, dishonesty, or careless
behavior; physical hazards are tangible conditions, while morale hazards involve indifference to loss due
to insurance protection.
Q11: An insured has two policies covering the same property. The loss settlement provision that
prevents recovery exceeding the loss is:
A. Primary and excess
B. Pro rata liability
C. Other insurance clause [CORRECT]
D. Non-concurrency
Correct Answer: C
Rationale: The other insurance clause establishes how multiple policies covering the same loss will share
payment, preventing the insured from profiting through duplicate coverage.
Q12: A representation in insurance is:
A. A guarantee written in the policy
B. A statement believed to be true to the best of the applicant's knowledge [CORRECT]
C. A promise that never changes
D. A physical inspection
Correct Answer: B
Rationale: Representations are statements made during application that are believed true but not
guaranteed; unlike warranties, innocent misrepresentations may not void coverage unless material to
the risk.
Q13: Risk retention is most appropriate when:
A. The potential loss is catastrophic and unaffordable
B. The potential loss is small, predictable, and less costly than insurance premiums [CORRECT]
C. The law requires insurance
D. A mortgage lender requires coverage
