Texas Property & Casualty Insurance License, Practice Exams

A health benefit plan issuer rejects an applicant because the applicant is not fluent in English and cannot read English-language materials. Under Subchapter C of Chapter 544, basing an underwriting guideline on an applicant's English fluency or English literacy is:

1. prohibited ✓
2. permitted, provided the issuer offers the same guideline uniformly to all applicants regardless of their stated national origin or ancestry
3. permitted only if the issuer first provides translated policy documents and the applicant still declines coverage
4. allowed because language ability is treated as a sound actuarial factor reasonably related to anticipated loss experience

Why: Sec. 544.103(a) prohibits a health benefit plan issuer from using an underwriting guideline based on English fluency or English literacy.

Medical Payments to Others (Coverage F) typically does NOT pay for injuries to:

1. The named insured or a resident relative ✓
2. A delivery person hurt on the walkway
3. A guest tripping on the stairs
4. A child injured at a party

Why: Coverage F excludes the named insured and regular residents of the household; it is intended for injuries to third parties, not the insureds themselves.

Under the PAP, glass breakage is typically covered under:

1. Medical Payments under the policy's terms
2. Liability
3. Collision
4. Other Than Collision (comprehensive) ✓

Why: Glass breakage is normally covered as an Other Than Collision (comprehensive) loss, though it can be claimed as collision when caused by a collision event.

A loss payable clause in a property policy primarily protects:

1. The state guaranty fund unless an exception clearly applies for the coverage that is in force
2. A secured creditor or lender with an interest in covered personal property ✓
3. The bailee
4. The named insured only

Why: A loss payable clause directs claim payments to a designated party (such as a lender) holding an interest in the covered property.

Texas UM/UIM and PIP rejections must be made by the named insured in what form to be effective?

1. By declining to pay the additional premium
2. In writing ✓
3. By a notation on the application initialed by the agent
4. Orally to the producer

Why: Both 1952.101(c) (UM/UIM) and 1952.152(b) (PIP) require the named insured's rejection to be in writing.

A homeowner applies for NFIP flood coverage on June 1 because heavy rains are forecast. A flood damages the home on June 10. The claim will most likely be:

1. Paid in full
2. Denied because the 30-day waiting period had not elapsed ✓
3. Paid only for contents
4. Paid at 50% because of the waiting period

Why: Because the standard 30-day NFIP waiting period had not yet passed, the policy was not in effect at the time of loss and the claim would be denied.

Under §2210.052(a), how is each TWIA member insurer's share of association losses and operating expenses (in excess of premium and revenue) determined?

1. In proportion that the member's net direct premiums bear to the aggregate net direct premiums of all members ✓
2. Equally among all members regardless of size
3. By the number of agents the member appoints
4. By the member's surplus as reported to the NAIC unless an exception clearly applies for the coverage that is in force

Why: §2210.052(a) apportions each member's participation in TWIA losses and expenses in the proportion that the member's net direct premiums during the preceding calendar year bear to the aggregate net direct premiums of all members.

Which statement about no-fault auto insurance CONCEPTS is generally correct?

1. No-fault systems let injured parties recover certain economic losses from their own insurer regardless of fault ✓
2. No-fault means no one ever pays for accidents
3. No-fault eliminates the need for liability coverage entirely unless an exception clearly applies for the coverage that is in force
4. No-fault applies only to property damage

Why: Under no-fault concepts, an injured person's own insurer pays specified personal injury/economic losses regardless of who caused the accident, with limits on lawsuits.

The National Flood Insurance Program (NFIP) is administered by which federal agency?

1. The U.S. Department of Agriculture
2. The Department of Housing and Urban Development
3. The Small Business Administration
4. The Federal Emergency Management Agency (FEMA) ✓

Why: The NFIP is administered by FEMA, an agency within the Department of Homeland Security.

An insured has a claims-made CGL with a retroactive date of 1/1/2020. An injury occurred in 2019 but the claim is first made in 2024 while the policy is in force. The claim is:

1. Covered under the tail
2. Covered, because it was made during the policy period
3. Covered under Supplementary Payments
4. Not covered, because the injury occurred before the retroactive date ✓

Why: Even though the claim is made during the policy period, the injury predates the retroactive date, so it is not covered.

A pet dog owned by the insured causes damage. Animals are addressed in a Homeowners policy how?

1. Animals are excluded as covered property but liability for injury they cause may fall under Coverage E ✓
2. Animals are covered under Coverage D
3. Animals are covered under Coverage A
4. Animals are covered as personal property under Coverage C unless an exception clearly applies for the coverage that is in force

Why: Animals, birds, and fish are excluded as Coverage C property, but bodily injury or property damage caused by a pet may be covered under Section II liability.

An automobile assigned-risk plan is a type of:

1. Private umbrella program
2. Federal reinsurance pool
3. Residual (shared) market that distributes hard-to-insure drivers among insurers ✓
4. Voluntary discount program unless an exception clearly applies for the coverage that is in force

Why: Assigned-risk plans are auto residual markets that assign drivers who cannot obtain coverage voluntarily to insurers in proportion to their market share.

The primary purpose of the 30-day NFIP waiting period is to:

1. Give FEMA time to certify the agent unless an exception clearly applies for the coverage that is in force
2. Allow time to inspect the home
3. Comply with TRIA
4. Prevent consumers from buying flood coverage only when a flood is imminent (adverse selection) ✓

Why: The waiting period reduces adverse selection by preventing purchase of coverage immediately before a known or imminent flood.

Under the BACF, if a covered auto is a total loss, the insurer generally pays:

1. The amount financed on the loan
2. The original purchase price
3. The actual cash value or cost to repair, whichever is less, minus deductible ✓
4. The cost of a brand-new replacement unless an exception clearly applies for the coverage that is in force

Why: BACF physical damage settlement is based on the lesser of ACV or repair cost, less the applicable deductible, similar to the PAP.

A bookkeeper embezzles $50,000 from her employer over two years. Which form responds?

1. Liquor liability
2. A fidelity bond / employee dishonesty coverage ✓
3. A performance bond in that particular circumstance
4. CGL Coverage A

Why: Employee theft of employer funds is covered by a fidelity bond/employee dishonesty coverage, not the CGL.

A general contractor requires its subcontractor to name it as an additional insured. The PRIMARY benefit to the general contractor is:

1. The sub's product warranty
2. Reduced workers compensation cost unless an exception clearly applies for the coverage that is in force
3. Coverage under the sub's policy for the GC's vicarious liability arising from the sub's work ✓
4. Lower premium for the sub

Why: As an additional insured on the sub's policy, the GC obtains coverage for liability arising out of the subcontractor's operations.

Rating that relies on the underwriter's individual judgment when little statistical data exists is called:

1. Class rating
2. Loss-cost rating
3. Judgment rating ✓
4. Experience rating

Why: Judgment rating is used for unique or hard-to-classify risks where the underwriter sets the rate based on experience and judgment.

Which optional coverage can be added to a BOP to cover liability arising from autos the insured hires or borrows but does not own?

1. Hired and Non-Owned Auto liability ✓
2. Protective safeguards
3. Peak season
4. Utility services

Why: Hired and Non-Owned Auto liability can be added to a BOP to cover liability arising from autos hired or used in the business that the insured does not own.

Which Homeowners form provides the narrowest, modified settlement and is limited in covered perils for the dwelling?

1. HO-2
2. HO-3
3. HO-8 ✓
4. HO-6

Why: HO-8 is the Modified Coverage Form with restricted perils and functional/repair-cost settlement, designed for older homes; it is narrower than HO-2 or HO-3.

A landlord owns a rental house and wants to insure the building and recover lost rents but does not need contents coverage. Which policy line fits best?

1. Homeowners HO-6
2. Dwelling Policy with Coverage A and D ✓
3. Personal Articles Floater
4. Homeowners HO-4

Why: The Dwelling Policy is well suited to landlord/rental risks, providing Coverage A on the structure and Coverage D for lost fair rental value, without requiring contents coverage.

An insured who intentionally sets fire to insured property to collect on the policy demonstrates:

1. A moral hazard ✓
2. A physical hazard
3. A morale hazard
4. An aleatory hazard

Why: A moral hazard exists when a person's dishonesty or tendency to cause a loss, such as arson for profit, increases the chance of loss.

Insurance that covers a single, identified item for a specific amount is called:

1. Blanket insurance
2. Pro rata insurance
3. Specific (scheduled) insurance ✓
4. Aggregate insurance

Why: Specific/scheduled insurance lists individual items, each with its own assigned limit of coverage.

A homeowner is sued because a visitor slipped on an icy walkway and was injured. The cost of the insurer defending this suit is:

1. Provided in addition to the Coverage E limit as a supplementary/defense cost ✓
2. Charged to the insured's limit unless an exception clearly applies for the coverage that is in force
3. Excluded
4. Paid under Coverage D

Why: Defense costs under Section II are generally provided in addition to the Coverage E limit of liability and continue until the limit is exhausted by settlement or judgment.

A contested case hearing in the Texas workers' compensation system is conducted by a(n):

1. Jury
2. District court judge
3. Panel of three commissioners
4. Administrative law judge ✓

Why: A contested case hearing is conducted by an administrative law judge (formerly called a 'hearing officer'), who must be licensed to practice law in Texas.

It is a deceptive act under Section 541.059 for a person in the insurance business to use a business name, word, symbol, or slogan deceptively similar to one used by another authorized insurer. However, the statute provides a defense for the person who:

1. registered the disputed name, word, or symbol with the Texas Secretary of State before any competitor began using a confusingly similar mark
2. obtained written consent from the Texas Department of Insurance before adopting the contested mark for advertising
3. demonstrates the first continuous actual use of the name, word, symbol, device, or slogan ✓
4. operates in a different line of insurance than the insurer claiming prior rights to the contested mark

Why: Sec. 541.059(b) protects the person who demonstrates the first continuous actual use of the name, word, symbol, device, or slogan.

In a Homeowners policy, neglect by the insured to use reasonable means to save property at and after a loss is:

1. Required for payment
2. A covered cause of loss unless an exception clearly applies for the coverage that is in force
3. Part of Coverage F
4. An exclusion, meaning resulting additional damage is not covered ✓

Why: Neglect is listed among the exclusions; the insured must take reasonable steps to protect property, and damage from failing to do so is not covered.

An insurer cancels a homeowners policy for a permitted ground under §551.104(b). Under §551.104(e), the cancellation does not take effect until which date?

1. The 10th day after the insurer mails notice of cancellation to the insured ✓
2. The 5th day after the insurer mails notice
3. The 30th day after the insurer mails notice according to the insurer's rules
4. Immediately upon mailing the notice

Why: §551.104(e) provides that cancellation under Subsection (b), (c), or (d) does not take effect until the 10th day after the date the insurer mails the cancellation notice to the insured.