TEXAS DEPARTMENT OF INSURANCE
Texas Property and Casualty Exam
Practice Questions and Answers
Official Practice Exam - 2026/2027 Edition
200 Verified Questions | A Graded | Actual Exam Content
Questions: 200 | Minutes: 180 | Passing Score: 80% | Property & Casualty
TABLE OF CONTENTS
Section 1: General Insurance Concepts & Principles .............. Q1 - Q35
Section 2: Property Insurance Basics .................................. Q36 - Q70
Section 3: Casualty Insurance Basics .................................. Q71 - Q105
Section 4: Dwelling & Homeowners Insurance ........................ Q106 - Q135
Instructions Section 5: Commercial Property & Casualty Insurance ............ Q136 - Q170
Section 6: Texas State-Specific Regulations & Laws ............... Q171 - Q200
This practice exam contains 200 multiple-choice questions covering the Texas Property and Casualty licensing
exam. Each question presents a scenario followed by four answer options. Select the single best answer. A
correct answer and rationale follow each question. A complete answer key appears on the final page. You have
180 minutes to complete this exam. A score of 80% or higher (160 of 200 questions correct) is required to pass.
This study guide is designed to reinforce high-yield concepts and regulatory knowledge for the Texas P&C
examination.
Texas Property & Casualty - 2026/2027 | Passing Score: 80% | Page 1 of TOTAL
, Section: General Insurance Concepts & Principles - 2026/2027
Q1 Question 1 of 200
A contractor in Houston wants to transfer the financial risk of a potential workplace injury to
an insurance company rather than retaining it. This decision best illustrates which risk
management technique?
A. Risk avoidance
B. Risk retention
C. Risk reduction
D. Risk transfer
Correct Answer: D
Rationale:
Risk transfer involves shifting the financial burden of potential loss to another party, typically an insurer through
purchasing a policy. Risk avoidance eliminates the activity entirely, risk reduction implements safety measures to
lessen loss frequency or severity, and risk retention means accepting the financial consequences of a loss
internally.
Q2 Question 2 of 200
An insurance producer explains to a client that the insurer will only pay for covered losses
that happen by chance, not those that are certain to occur. This describes which
fundamental insurance principle?
A. Principle of indemnity
B. Principle of insurable interest
C. Principle of aleatory contract
D. Principle of fortuity
Correct Answer: D
Rationale:
The principle of fortuity means insurance covers only accidental or chance events, not inevitable ones. Indemnity
limits recovery to actual loss amount, insurable interest requires a financial stake in the insured property, and
aleatory refers to the unequal exchange of value between premium and potential benefit.
, Q3 Question 3 of 200
A policyholder discovers that her insurance contract contains an ambiguous clause
regarding coverage for water damage. The court rules in her favor. Which legal doctrine
supports this outcome?
A. Doctrine of reasonable expectations
B. Doctrine of estoppel
C. Doctrine of subrogation
D. Doctrine of adhesion
Correct Answer: D
Rationale:
The doctrine of adhesion states that ambiguous language in a contract of adhesion (such as an insurance policy
drafted by the insurer) is interpreted in favor of the insured. Reasonable expectations applies when a layperson
would expect coverage, subrogation transfers recovery rights to the insurer, and estoppel prevents a party from
asserting a claim contradictory to a prior position.
Q4 Question 4 of 200
A Texas resident purchases a homeowners policy to protect her house from fire damage.
At the time of application, she must have a financial stake in the property for the contract to
be valid. This requirement is known as what?
A. Utmost good faith
B. Assignment clause
C. Doctrine of adhesion
D. Insurable interest
Correct Answer: D
Rationale:
Insurable interest is the legal requirement that a policyholder must have a genuine financial stake in the property
or person being insured at the time the policy is purchased. Utmost good faith requires honest disclosure,
adhesion governs contract interpretation, and assignment involves transferring policy rights to another party.
Texas Property & Casualty - 2026/2027 | Passing Score: 80% | Page 3 of TOTAL
, Q5 Question 5 of 200
An insurance company collects premiums from thousands of policyholders and uses those
funds to pay the relatively few who experience losses. This mechanism best describes
which concept?
A. Law of large numbers
B. Principle of indemnity
C. Risk pooling
D. Adverse selection
Correct Answer: C
Rationale:
Risk pooling (also called the law of large numbers in practice) is the fundamental mechanism where many
insureds contribute premiums to a common fund that pays the losses of the few. Indemnity limits recovery,
adverse selection occurs when higher-risk individuals disproportionately seek insurance, and the law of large
numbers provides the statistical basis for predicting losses.
Q6 Question 6 of 200
After a covered loss, an insurer pays the claim and then seeks to recover the payment
from the at-fault third party. The insurer is exercising which right?
A. Right of subrogation
B. Right of salvage
C. Right of assignment
D. Right of rescission
Correct Answer: A
Rationale:
Subrogation gives the insurer the right to step into the shoes of the insured and pursue recovery from the
responsible third party after paying a claim. Salvage involves taking possession of damaged property,
assignment transfers policy ownership, and rescission is the cancellation of a policy due to misrepresentation.
Q7 Question 7 of 200
A business owner fails to disclose a prior insurance claim on her application, and the
insurer later denies coverage based on this omission. Which principle supports the
insurer's decision?
A. Utmost good faith
B. Doctrine of adhesion
C. Principle of indemnity
D. Principle of fortuity
Correct Answer: A
Rationale:
Utmost good faith (uberrimae fidei) requires both parties to an insurance contract to act honestly and disclose all
material facts. Concealment of a prior claim is a breach of this duty and can void coverage. Adhesion deals with
ambiguous contract terms, indemnity limits recovery to actual loss, and fortuity covers only accidental events.
Texas Property & Casualty - 2026/2027 | Passing Score: 80% | Page 4 of TOTAL
Texas Property and Casualty Exam
Practice Questions and Answers
Official Practice Exam - 2026/2027 Edition
200 Verified Questions | A Graded | Actual Exam Content
Questions: 200 | Minutes: 180 | Passing Score: 80% | Property & Casualty
TABLE OF CONTENTS
Section 1: General Insurance Concepts & Principles .............. Q1 - Q35
Section 2: Property Insurance Basics .................................. Q36 - Q70
Section 3: Casualty Insurance Basics .................................. Q71 - Q105
Section 4: Dwelling & Homeowners Insurance ........................ Q106 - Q135
Instructions Section 5: Commercial Property & Casualty Insurance ............ Q136 - Q170
Section 6: Texas State-Specific Regulations & Laws ............... Q171 - Q200
This practice exam contains 200 multiple-choice questions covering the Texas Property and Casualty licensing
exam. Each question presents a scenario followed by four answer options. Select the single best answer. A
correct answer and rationale follow each question. A complete answer key appears on the final page. You have
180 minutes to complete this exam. A score of 80% or higher (160 of 200 questions correct) is required to pass.
This study guide is designed to reinforce high-yield concepts and regulatory knowledge for the Texas P&C
examination.
Texas Property & Casualty - 2026/2027 | Passing Score: 80% | Page 1 of TOTAL
, Section: General Insurance Concepts & Principles - 2026/2027
Q1 Question 1 of 200
A contractor in Houston wants to transfer the financial risk of a potential workplace injury to
an insurance company rather than retaining it. This decision best illustrates which risk
management technique?
A. Risk avoidance
B. Risk retention
C. Risk reduction
D. Risk transfer
Correct Answer: D
Rationale:
Risk transfer involves shifting the financial burden of potential loss to another party, typically an insurer through
purchasing a policy. Risk avoidance eliminates the activity entirely, risk reduction implements safety measures to
lessen loss frequency or severity, and risk retention means accepting the financial consequences of a loss
internally.
Q2 Question 2 of 200
An insurance producer explains to a client that the insurer will only pay for covered losses
that happen by chance, not those that are certain to occur. This describes which
fundamental insurance principle?
A. Principle of indemnity
B. Principle of insurable interest
C. Principle of aleatory contract
D. Principle of fortuity
Correct Answer: D
Rationale:
The principle of fortuity means insurance covers only accidental or chance events, not inevitable ones. Indemnity
limits recovery to actual loss amount, insurable interest requires a financial stake in the insured property, and
aleatory refers to the unequal exchange of value between premium and potential benefit.
, Q3 Question 3 of 200
A policyholder discovers that her insurance contract contains an ambiguous clause
regarding coverage for water damage. The court rules in her favor. Which legal doctrine
supports this outcome?
A. Doctrine of reasonable expectations
B. Doctrine of estoppel
C. Doctrine of subrogation
D. Doctrine of adhesion
Correct Answer: D
Rationale:
The doctrine of adhesion states that ambiguous language in a contract of adhesion (such as an insurance policy
drafted by the insurer) is interpreted in favor of the insured. Reasonable expectations applies when a layperson
would expect coverage, subrogation transfers recovery rights to the insurer, and estoppel prevents a party from
asserting a claim contradictory to a prior position.
Q4 Question 4 of 200
A Texas resident purchases a homeowners policy to protect her house from fire damage.
At the time of application, she must have a financial stake in the property for the contract to
be valid. This requirement is known as what?
A. Utmost good faith
B. Assignment clause
C. Doctrine of adhesion
D. Insurable interest
Correct Answer: D
Rationale:
Insurable interest is the legal requirement that a policyholder must have a genuine financial stake in the property
or person being insured at the time the policy is purchased. Utmost good faith requires honest disclosure,
adhesion governs contract interpretation, and assignment involves transferring policy rights to another party.
Texas Property & Casualty - 2026/2027 | Passing Score: 80% | Page 3 of TOTAL
, Q5 Question 5 of 200
An insurance company collects premiums from thousands of policyholders and uses those
funds to pay the relatively few who experience losses. This mechanism best describes
which concept?
A. Law of large numbers
B. Principle of indemnity
C. Risk pooling
D. Adverse selection
Correct Answer: C
Rationale:
Risk pooling (also called the law of large numbers in practice) is the fundamental mechanism where many
insureds contribute premiums to a common fund that pays the losses of the few. Indemnity limits recovery,
adverse selection occurs when higher-risk individuals disproportionately seek insurance, and the law of large
numbers provides the statistical basis for predicting losses.
Q6 Question 6 of 200
After a covered loss, an insurer pays the claim and then seeks to recover the payment
from the at-fault third party. The insurer is exercising which right?
A. Right of subrogation
B. Right of salvage
C. Right of assignment
D. Right of rescission
Correct Answer: A
Rationale:
Subrogation gives the insurer the right to step into the shoes of the insured and pursue recovery from the
responsible third party after paying a claim. Salvage involves taking possession of damaged property,
assignment transfers policy ownership, and rescission is the cancellation of a policy due to misrepresentation.
Q7 Question 7 of 200
A business owner fails to disclose a prior insurance claim on her application, and the
insurer later denies coverage based on this omission. Which principle supports the
insurer's decision?
A. Utmost good faith
B. Doctrine of adhesion
C. Principle of indemnity
D. Principle of fortuity
Correct Answer: A
Rationale:
Utmost good faith (uberrimae fidei) requires both parties to an insurance contract to act honestly and disclose all
material facts. Concealment of a prior claim is a breach of this duty and can void coverage. Adhesion deals with
ambiguous contract terms, indemnity limits recovery to actual loss, and fortuity covers only accidental events.
Texas Property & Casualty - 2026/2027 | Passing Score: 80% | Page 4 of TOTAL
