Texas Property and Casualty Insurance Practice Questions
12 sample questions written from the Texas exam outline, with answers and explanations. The first two are open. Enter your email to see the other ten.
The Texas General Lines Property and Casualty exam has 130 scored questions (100 general, 30 Texas law) in 150 minutes. You need a scaled score of 70 to pass. How to get the Texas Property and Casualty license →
Try two questions
1. An insurer accepts a premium and issues a policy to a man whom a court had already declared mentally incompetent. Which element of a legal contract is missing?
- A. Competent parties
- B. Consideration
- C. Legal purpose
- D. Offer and acceptance
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Answer: A. Competent parties
Both parties to a contract must be legally able to make one. A person a court has declared mentally incompetent is not a competent party.
2. An underwriter reviews how often a group of restaurants has had fires over the past five years, without looking at how large each fire was. This measure is called:
- A. Loss ratio
- B. Loss frequency
- C. Loss reserve
- D. Loss severity
Show answer
Answer: B. Loss frequency
Loss frequency is how often losses happen. Loss severity is how large the losses are.
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3. An insurer buys reinsurance to pass part of a large risk to a reinsurer. The insurer that passes on the risk is called the:
- A. Captive insurer
- B. Surplus lines insurer
- C. Ceding insurer
- D. Assuming insurer
Answer: C. Ceding insurer
The ceding insurer transfers, or cedes, part of its risk. The reinsurer that accepts the risk is the assuming insurer.
4. While playing golf, Ben hits a ball that injures another golfer, who sues him. Which homeowners coverage responds to the lawsuit?
- A. Coverage C, personal property
- B. Coverage D, loss of use
- C. Coverage F, medical payments to others
- D. Coverage E, personal liability
Answer: D. Coverage E, personal liability
Coverage E, personal liability, covers lawsuits for bodily injury or property damage the insured causes, on or away from the home, plus defense costs.
5. Nora backs her car into a light pole in a parking lot and dents the bumper. Which part of her personal auto policy pays for the damage to her car?
- A. Medical payments coverage
- B. Collision coverage
- C. Liability coverage
- D. Other than collision coverage
Answer: B. Collision coverage
Collision coverage pays for damage to the insured's car when it hits another object or overturns, minus the deductible. Liability covers damage to other people's property.
6. A fire caused by an employee's carelessness damages the office building that a business owns. Under the business's commercial general liability policy, the damage to the building is:
- A. Covered under Coverage A, because the employee was careless
- B. Covered under the damage to premises rented to you limit
- C. Excluded, because damage to property the insured owns is excluded
- D. Covered under Coverage C, medical payments
Answer: C. Excluded, because damage to property the insured owns is excluded
Liability insurance pays for harm to others. The commercial general liability policy excludes damage to property the insured owns, rents or occupies, so the business needs commercial property insurance on its building.
7. Floodwater fills the Ortegas' basement. Their National Flood Insurance Program policy includes building and contents coverage. Which basement item is covered?
- A. The finished paneled walls
- B. The wall-to-wall carpet
- C. A sofa and television in the family room
- D. The furnace
Answer: D. The furnace
Flood policies cover only a short list of basement items, such as furnaces, water heaters, washers, dryers and freezers. Finished walls, floor coverings and most furniture in a basement are not covered.
8. A furniture maker ships its products to customers using trucking companies it hires. Which coverage protects the furniture against loss while it is being shipped?
- A. A transit floater
- B. Commercial general liability coverage
- C. A bailee's customer policy
- D. A builders risk policy
Answer: A. A transit floater
A transit floater is inland marine coverage for the owner's goods while they are being shipped. A trucking company is often liable for only a limited amount, so shippers buy their own coverage.
9. A hidden defect in a ship's engine causes a breakdown that damages the vessel. Which ocean marine hull clause covers this loss?
- A. Warehouse to warehouse clause
- B. General average clause
- C. Inchmaree clause
- D. Sue and labor clause
Answer: C. Inchmaree clause
The Inchmaree clause extends hull coverage to damage caused by hidden defects in the hull or machinery and by the carelessness of the captain or crew.
10. Kim's car loan lender is named as loss payee on her personal auto policy. After a covered total loss, how is the physical damage payment made?
- A. To Kim only, and she must pay the lender herself
- B. To the dealer who sold her the car
- C. To the lender only, whatever Kim owes on the loan
- D. To Kim and the lender, as their interests may appear
Answer: D. To Kim and the lender, as their interests may appear
A loss payable clause protects the lender's financial interest in the car. The insurer pays Kim and the lender, each to the extent of its interest.
11. A shopper walking through a hardware store during business hours slips on a spilled liquid. Under premises liability law, the shopper is:
- A. An invitee, who is owed the highest duty of care
- B. A trespasser, who is owed only freedom from willful harm
- C. A licensee, who is owed only a warning of known dangers
- D. A bailee, who is owed no duty of care
Answer: A. An invitee, who is owed the highest duty of care
People who come onto the property for the owner's business purpose, such as customers, are invitees. The owner must use reasonable care to find and fix hazards or warn about them.
12. Which federal law leaves the regulation of the insurance business mainly to the states?
- A. The Gramm-Leach-Bliley Act
- B. The McCarran-Ferguson Act
- C. The Sherman Antitrust Act
- D. The Fair Credit Reporting Act
Answer: B. The McCarran-Ferguson Act
The McCarran-Ferguson Act of 1945 says the states regulate the business of insurance. A federal law does not override a state insurance law unless the federal law specifically relates to insurance.
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These are original questions written from the published exam outline. They are not taken from the state exam.
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