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TX Property & Casualty practice questions

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Question 1Texas Insurance Laws, Rules, and Regulations

Who appoints the Commissioner of Insurance in Texas?

  1. The Governor Correct answer.
  2. The Attorney General
  3. The Speaker of the House
  4. The Lieutenant Governor

Explanation

The Commissioner of Insurance is the chief executive of the Texas Department of Insurance and is appointed by the Governor with the advice and consent of the Texas Senate. The Commissioner serves a two-year term.

Question 2Texas Insurance Laws, Rules, and Regulations

What is the minimum age for an applicant to qualify for a Texas agent license?

  1. 21 years old
  2. 18 years old Correct answer.
  3. 16 years old
  4. 25 years old

Explanation

An applicant must be at least 18 years old and must also satisfy the examination, fingerprint, and other licensing requirements. Age 18 is the statutory minimum for a Texas agent license.

Question 3Texas Insurance Laws, Rules, and Regulations

An agent offers to use her own commission to pay an applicant's first-month premium so the applicant will buy a policy. Under Texas law, this conduct is:

  1. permitted if disclosed on the application
  2. permitted if the insurer approves in writing
  3. rebating, which is prohibited Correct answer.
  4. permitted for personal auto policies only

Explanation

Offering an inducement not specified in the policy, such as paying premium from the agent's commission, is rebating. Texas prohibits rebating as an unfair trade practice.

Question 4Texas Insurance Laws, Rules, and Regulations

An agent falsely tells a policyholder that her existing policy is nearly worthless and thereby persuades her to let it lapse and buy a replacement policy. This practice is known as:

  1. subrogation
  2. coinsurance
  3. twisting Correct answer.
  4. estoppel

Explanation

Twisting is misrepresenting an existing policy to induce the policyholder to lapse or surrender it and buy another policy. It is a prohibited deceptive practice.

Question 5Texas Insurance Laws, Rules, and Regulations

What are the minimum liability limits for a Texas personal auto policy?

  1. 50/100/50
  2. 20/40/15
  3. 25/50/20
  4. 30/60/25 Correct answer.

Explanation

Texas requires minimum liability limits of at least $30,000 per person, $60,000 per accident, and $25,000 for property damage. These are commonly written as 30/60/25.

Question 6Texas Insurance Laws, Rules, and Regulations

Workers' compensation coverage in Texas is generally:

  1. mandatory only for construction employers
  2. elective for employers Correct answer.
  3. mandatory for every employer with one or more employees
  4. required only for employers with 10 or more employees

Explanation

Texas workers' compensation is elective for most private employers. An employer may choose not to carry coverage but then gives up certain common-law defenses.

Question 7Texas Insurance Laws, Rules, and Regulations

Under Texas rating law, property and casualty rates must not be:

  1. reviewed by the NAIC
  2. identical among competing insurers
  3. guaranteed to produce an underwriting profit
  4. excessive, inadequate, or unfairly discriminatory Correct answer.

Explanation

Texas requires rates to be neither excessive nor inadequate and to avoid unfair discrimination among similar risks. Rates are not required to be identical or profit-guaranteed.

Question 8Texas Insurance Laws, Rules, and Regulations

When an agent collects premium from an insured, the agent holds the funds in which capacity?

  1. As the insurer's general creditor
  2. As an escrow agent for the Texas Department of Insurance
  3. As the agent's personal funds once the policy is bound
  4. In a fiduciary capacity Correct answer.

Explanation

Premium collected by an agent is trust money held in a fiduciary capacity. The agent must not commingle those funds with personal or general business funds.

Question 9Texas Insurance Laws, Rules, and Regulations

How many continuing education hours must a Texas agent complete every two years, and what is the ethics component?

  1. 16 hours, including 2 hours of ethics
  2. 12 hours, including 1 hour of ethics
  3. 30 hours, including 3 hours of ethics
  4. 24 hours, including 2 hours of ethics Correct answer.

Explanation

Texas agents must complete 24 hours of continuing education every two years, including at least 2 hours of ethics. Other specific subject requirements may also apply.

Question 10Texas Insurance Laws, Rules, and Regulations

An insurer appoints an agent to sell its policies. Within how many days after the agent begins acting for the insurer must the insurer file the appointment with TDI?

  1. 30 days Correct answer.
  2. 10 days
  3. 45 days
  4. 60 days

Explanation

The insurer must file the appointment with TDI within 30 days after the agent begins acting under the appointment. The appointment must be on file for the agent to lawfully represent the insurer.

Question 11Texas Insurance Laws, Rules, and Regulations

When an insurer terminates an agent's appointment, within what period must the insurer notify TDI?

  1. 30 days Correct answer.
  2. 90 days
  3. 5 days
  4. 15 days

Explanation

An insurer must notify TDI within 30 days after terminating an agent's appointment. This notice keeps the licensing records current.

Question 12Texas Insurance Laws, Rules, and Regulations

A licensed agent wants to pay part of her commission to an unlicensed friend who referred a client. Under Texas law, the agent may:

  1. share the commission if the amount is below $100
  2. not share the commission with the unlicensed friend Correct answer.
  3. share the commission if the friend is a family member
  4. share the commission if the referral is disclosed to the insurer

Explanation

Commissions may be paid only to licensed agents. Paying an unlicensed person for a referral is an unlawful sharing of commission.

Question 13Texas Insurance Laws, Rules, and Regulations

How long must a Texas agent keep records of insurance transactions?

  1. 10 years
  2. 2 years
  3. 5 years Correct answer.
  4. 3 years

Explanation

Agents must keep records of insurance transactions for at least five years. The records must be available for examination by TDI.

Question 14Texas Insurance Laws, Rules, and Regulations

A licensed agent moves to a new address. Within how many days must the agent notify TDI of the change?

  1. 30 days Correct answer.
  2. 60 days
  3. 90 days
  4. 10 days

Explanation

A licensee must notify TDI of a change of address within 30 days. License records must reflect current contact information.

Question 15Texas Insurance Laws, Rules, and Regulations

Texas personal auto policies must offer personal injury protection (PIP) with a minimum benefit of:

  1. $2,500
  2. $1,000
  3. $5,000 Correct answer.
  4. $10,000

Explanation

Texas requires every personal auto policy to offer at least $2,500 in PIP benefits unless the insured rejects the coverage in writing. PIP covers items such as medical expenses and lost income.

Question 16Texas Insurance Laws, Rules, and Regulations

An insured tells her agent she does not want uninsured/underinsured motorist coverage. To make the rejection effective, the agent should:

  1. obtain the insured's written rejection on the required form Correct answer.
  2. obtain the insurer's oral approval
  3. confirm the rejection on the next renewal application
  4. note the request in the agency file only

Explanation

UM/UIM coverage must be offered, and a rejection is effective only if made in writing on the required form. A file note or oral statement is not sufficient.

Question 17Texas Insurance Laws, Rules, and Regulations

The Texas Windstorm Insurance Association (TWIA) provides coverage for:

  1. workers' compensation for maritime employers
  2. auto liability for high-risk drivers
  3. flood losses throughout Texas
  4. windstorm and hail losses in designated coastal areas Correct answer.

Explanation

TWIA is the residual market for windstorm and hail coverage in designated coastal areas of Texas. It is not a statewide flood or auto insurer.

Question 18Texas Insurance Laws, Rules, and Regulations

The Texas Property and Casualty Insurance Guaranty Association generally pays covered claims up to what limit per claim?

  1. $300,000 Correct answer.
  2. $500,000
  3. $100,000
  4. $1,000,000

Explanation

The Texas Property and Casualty Insurance Guaranty Association generally pays covered claims up to $300,000 per claim. The guaranty association protects insureds when an admitted insurer becomes insolvent.

Question 19Texas Insurance Laws, Rules, and Regulations

Under Texas law, an insurer using credit information for personal auto insurance must:

  1. avoid using credit information as the sole basis for rating or underwriting Correct answer.
  2. obtain approval from the NAIC before using credit
  3. limit credit-based rating to applicants over age 50
  4. use the credit score as the only rating factor

Explanation

Insurers may use credit information only with required disclosures and may not use it as the sole basis for underwriting or rating. Texas also restricts the use of credit information after certain protected events.

Question 20Texas Insurance Laws, Rules, and Regulations

The Texas FAIR Plan Association was created to:

  1. provide windstorm coverage for coastal property owners
  2. provide property coverage for applicants without voluntary market options Correct answer.
  3. provide auto liability coverage for high-risk drivers
  4. provide workers' compensation coverage for small employers

Explanation

The Texas FAIR Plan is a residual property insurance market for applicants who cannot obtain coverage from admitted insurers. It is not a workers' compensation or auto residual market.

Question 21Texas Insurance Laws, Rules, and Regulations

Under the Texas Prompt Payment of Claims Act, an insurer must acknowledge receipt of a claim within how many days?

  1. 5 days
  2. 15 days Correct answer.
  3. 30 days
  4. 10 days

Explanation

The insurer must acknowledge receipt of a claim within 15 days and then investigate promptly. Additional deadlines apply to requesting information and paying the claim.

Question 22Texas Insurance Laws, Rules, and Regulations

If an insurer delays payment of a claim beyond the period required by the Texas Prompt Payment of Claims Act, what interest rate generally applies to the overdue amount?

  1. 18 percent per year Correct answer.
  2. 6 percent per year
  3. 12 percent per year
  4. 10 percent per year

Explanation

Overdue claim payments under the Prompt Payment of Claims Act generally carry 18 percent annual interest. Attorney's fees may also be recoverable in some cases.

Question 23Texas Insurance Laws, Rules, and Regulations

A personal auto policy has been in effect for eight months. The insurer discovers the insured's driving record has worsened and wants to cancel the policy immediately for that reason. Under Texas law, the insurer:

  1. may cancel if the insured agrees in writing
  2. may cancel with 30 days' notice
  3. may cancel with 10 days' notice
  4. may not cancel mid-term for that reason Correct answer.

Explanation

After a personal auto policy has been in effect for 60 days, the insurer may cancel mid-term only for specified reasons such as nonpayment or material misrepresentation. A worsened driving record is not a listed mid-term cancellation ground.

Question 24Texas Insurance Laws, Rules, and Regulations

What is the surplus lines premium tax rate in Texas?

  1. 2.50 percent
  2. 1.50 percent
  3. 4.85 percent Correct answer.
  4. 3.50 percent

Explanation

Texas imposes a 4.85 percent premium tax on surplus lines policies. Surplus lines agents must collect and remit the tax as required.

Question 25Texas Insurance Laws, Rules, and Regulations

How are title insurance premium rates set in Texas?

  1. Negotiated between the title agent and the buyer
  2. Adopted by the NAIC for each state
  3. Set independently by each county clerk
  4. Promulgated by the Commissioner for uniform use Correct answer.

Explanation

Title insurance rates in Texas are promulgated by the Commissioner and must be charged uniformly. Title agents may not deviate from the filed rates.

Question 26Texas Insurance Laws, Rules, and Regulations

What are the minimum liability limits required for a Texas personal automobile policy?

  1. $25,000 per person, $50,000 per accident, and $20,000 property damage
  2. $50,000 per person, $100,000 per accident, and $25,000 property damage
  3. $30,000 per person, $60,000 per accident, and $25,000 property damage Correct answer.
  4. $20,000 per person, $40,000 per accident, and $15,000 property damage

Explanation

Texas requires personal auto liability limits of at least $30,000 per person, $60,000 per accident, and $25,000 for property damage. These are the statutory minimum limits for policies issued or renewed in Texas. An insured may purchase higher limits.

Question 27Texas Insurance Laws, Rules, and Regulations

How often must a Texas insurance agent license be renewed?

  1. Every two years, by the end of the birth month Correct answer.
  2. Every four years by the end of the agent's birth month
  3. Every three years on the license anniversary date
  4. Every year on January 1

Explanation

A Texas agent license is renewed biennially and expires on the last day of the licensee's birth month. The agent must complete continuing education and pay the renewal fee. Failure to renew timely may require a new application.

Question 28Texas Insurance Laws, Rules, and Regulations

An agent offers to pay a prospect's $50 policy fee to encourage the purchase of an insurance policy. This practice is known as:

  1. Coercion
  2. Defamation
  3. Twisting
  4. Rebating Correct answer.

Explanation

Rebating is offering anything of value not specified in the policy to induce a sale. Texas prohibits rebating as an unfair trade practice. The $50 payment is an unlawful inducement.

Question 29Texas Insurance Laws, Rules, and Regulations

An agent tells a client that her current insurer is financially unstable so she will surrender her policy and buy a new one. This prohibited practice is:

  1. Coercion
  2. Boycotting
  3. Twisting Correct answer.
  4. Rebating

Explanation

Twisting is misrepresenting an existing policy to induce the insured to lapse, surrender, or replace it. Texas prohibits twisting as an unfair trade practice. The agent's false statement about financial stability fits this definition.

Question 30Texas Insurance Laws, Rules, and Regulations

Who appoints the Texas Commissioner of Insurance?

  1. The voters in a statewide election
  2. The Texas Senate by majority vote
  3. The board of the Texas Department of Insurance
  4. The Governor, with Senate confirmation Correct answer.

Explanation

The Texas Commissioner of Insurance is appointed by the Governor with the advice and consent of the Senate. The Commissioner heads TDI and enforces insurance laws. The position is not elected.

Question 31Texas Insurance Laws, Rules, and Regulations

The Texas Automobile Insurance Plan Association (TAIPA) was established to:

  1. Provide windstorm coverage along the coast
  2. Guarantee payment of claims of insolvent auto insurers
  3. Set uniform rates for all personal auto insurers
  4. Offer auto liability to applicants who cannot obtain voluntary coverage Correct answer.

Explanation

TAIPA is Texas's residual market mechanism for personal auto liability insurance. It provides coverage to eligible applicants who cannot obtain insurance in the voluntary market. It is not a guaranty association or a rate-setting body.

Question 32Texas Insurance Laws, Rules, and Regulations

Before placing coverage with a surplus lines insurer, the agent must disclose to the insured that the insurer:

  1. Is admitted in Texas but not in the insured's county
  2. Is backed by the Texas Property and Casualty Insurance Guaranty Association
  3. Is not licensed in Texas and lacks guaranty association protection Correct answer.
  4. Must use rates approved by the Texas Department of Insurance

Explanation

Texas requires a surplus lines agent to disclose in writing that the insurer is not licensed by Texas and that the policy is not covered by the Texas guaranty association. The disclosure warns the insured of reduced regulatory protection. It must be given before the policy is placed.

Question 33Texas Insurance Laws, Rules, and Regulations

Which requirement must an applicant meet to obtain a Texas general lines property and casualty agent license?

  1. Be sponsored by an admitted Texas insurer before applying
  2. Be at least 18 years old and pass the licensing examination Correct answer.
  3. Own a Texas business that sells insurance products
  4. Have at least five years of prior insurance experience

Explanation

To obtain a Texas general lines P&C license, an applicant must be at least 18, complete the required prelicensing education, pass the exam, and submit fingerprints. Experience and business ownership are not prerequisites. An insurer files an appointment after the license is issued, not before the application.

Question 34Texas Insurance Laws, Rules, and Regulations

A personal auto policy has been in effect for 30 days. For which reason may the insurer cancel the policy under Texas law?

  1. Only for nonpayment of premium
  2. Only if the insured files a claim
  3. Only with prior approval from the Texas Department of Insurance
  4. For any reason, if proper written notice is given Correct answer.

Explanation

During the first 60 days a personal auto policy is in effect, Texas allows the insurer to cancel for any reason if it gives the required written notice. After 60 days, cancellation is limited to specified reasons such as nonpayment or fraud. The 30-day-old policy is still in the initial period.

Question 35Texas Insurance Laws, Rules, and Regulations

An insurer decides not to renew a Texas personal auto policy. How much advance written notice must the insurer give the insured?

  1. At least 30 days before expiration Correct answer.
  2. At least 45 days before expiration
  3. At least 10 days before expiration
  4. At least 60 days before expiration

Explanation

Texas requires an insurer to give at least 30 days' written notice before nonrenewing a personal auto policy. The notice must state the reason and inform the insured of complaint rights. Ten days is the notice period for cancellation for nonpayment, not nonrenewal.

Question 36Texas Insurance Laws, Rules, and Regulations

What is the general premium tax rate imposed on most property and casualty insurance premiums written in Texas?

  1. 1.0 percent
  2. 0.5 percent
  3. 4.85 percent
  4. 1.6 percent Correct answer.

Explanation

Texas imposes a premium tax of 1.6 percent on most property and casualty premiums. Surplus lines premiums are taxed at 4.85 percent, and certain other lines have different rates. The tax is paid by the insurer.

Question 37Texas Insurance Laws, Rules, and Regulations

Under Texas rate regulation, most property and casualty rates are subject to which filing approach?

  1. Prior approval, with no rate usable until approved
  2. State-mandated uniform rates for every insurer
  3. Open competition with no filing requirement
  4. File and use, with immediate use while TDI reviews Correct answer.

Explanation

Texas uses a file-and-use system for most property and casualty rates. An insurer files its rates with TDI and may use them immediately unless TDI disapproves them. Prior approval is not required for most P&C lines.

Question 38Texas Insurance Laws, Rules, and Regulations

An insured intentionally submits a claim for damage that occurred before the policy was purchased. Under Texas law, this is:

  1. A permissible claim if the amount is small
  2. Insurance fraud, which may be prosecuted criminally Correct answer.
  3. A matter for arbitration, not TDI
  4. Only a policy violation, not a crime

Explanation

Knowingly presenting a false or inflated claim is insurance fraud under Texas law. Fraud may be prosecuted criminally and can also lead to policy rescission. The TDI Fraud Unit investigates suspected fraud.

Question 39Texas Insurance Laws, Rules, and Regulations

A nonresident agent licensed and in good standing in a reciprocal state wants to sell insurance in Texas. What does Texas generally require?

  1. The agent must pass the Texas licensing exam regardless of home-state licensure
  2. Apply for a Texas license without taking the Texas exam Correct answer.
  3. The agent must establish a permanent Texas residence before applying
  4. The agent must complete the full Texas prelicensing education requirement

Explanation

Texas grants nonresident licenses on a reciprocal basis. A licensed nonresident generally must apply and pay the required fees but is not required to retake the Texas exam if the home state is reciprocal. Texas residence is not required.

Question 40Texas Insurance Laws, Rules, and Regulations

When a licensed agent dies or becomes disabled, TDI may issue a temporary license to continue the agency's business for up to:

  1. 90 days Correct answer.
  2. 30 days
  3. 180 days
  4. 60 days

Explanation

TDI may issue a temporary agent license for up to 90 days when a licensed agent dies or becomes disabled. The temporary license allows the agency to continue operations while a permanent replacement is arranged. It is not a general 180-day license.

Question 41Texas Insurance Laws, Rules, and Regulations

Which rating factor is expressly prohibited as unfair discrimination under Texas insurance law?

  1. The insured's race or national origin Correct answer.
  2. The insured's driving record
  3. The location of the insured property
  4. The insured's claims history

Explanation

Texas prohibits unfair discrimination in rates based on race, color, religion, or national origin. Insurers may use lawful factors such as driving record, location, and claims history. Discriminatory rating is an unfair trade practice.

Question 42Texas Insurance Laws, Rules, and Regulations

Before placing a commercial property risk with a surplus lines insurer, the agent must:

  1. Charge a rate no higher than the admitted-market rate
  2. File the policy form with the Texas Department of Insurance
  3. Document a diligent effort to place the risk with admitted insurers Correct answer.
  4. Obtain written approval from the Texas Commissioner of Insurance

Explanation

A surplus lines agent must make a documented diligent effort to place the risk with authorized insurers before using the surplus lines market. The effort must show that admitted insurers declined the risk. TDI approval of the individual policy is not required.

Question 43Texas Insurance Laws, Rules, and Regulations

A Texas personal auto insurer and insured sign an agreement that excludes a specific household member from coverage. This is:

  1. Prohibited because all household members must be covered
  2. Allowed only for drivers over age 25
  3. Permitted as a named driver exclusion Correct answer.
  4. Valid only if filed with TDI before use

Explanation

Texas permits a named driver exclusion in personal auto policies. The exclusion must specifically name the excluded driver and is typically signed by the insured. It removes coverage for that person while operating the covered vehicle.

Question 44Texas Insurance Laws, Rules, and Regulations

After a covered collision, an insurer may:

  1. Allow the insured to choose the repair shop Correct answer.
  2. Require the insured to obtain three repair estimates
  3. Refuse to pay unless the insured uses a network shop
  4. Require the insured to use the insurer's preferred repair shop

Explanation

Texas law gives the insured the right to choose the repair shop for covered vehicle damage. An insurer may not require the insured to use a particular shop. The insurer may still negotiate repair costs.

Question 45Texas Insurance Laws, Rules, and Regulations

By what date must a Texas insurer file its annual financial statement with TDI?

  1. January 1
  2. March 1 Correct answer.
  3. April 1
  4. February 1

Explanation

Texas insurers must file their annual financial statement with TDI by March 1 each year. The statement reports the insurer's financial condition and operating results. Late filing may lead to penalties.

Question 46Texas Insurance Laws, Rules, and Regulations

Another state imposes a higher premium tax on Texas insurers than Texas imposes on that state's insurers. Under Texas retaliatory law, Texas will:

  1. Ask the federal government to resolve the dispute
  2. Waive all premium taxes for that state's insurers
  3. Prohibit that state's insurers from writing Texas business
  4. Impose the same higher tax on that state's insurers Correct answer.

Explanation

Texas's retaliatory law applies the same taxes, fees, and penalties to insurers of another state that the other state imposes on Texas insurers. It is designed to discourage discriminatory treatment. The Commissioner applies the retaliatory provision.

Question 47Texas Insurance Laws, Rules, and Regulations

An insurer wants to write surplus lines coverage in Texas. What must be true about the insurer?

  1. It must post a surety bond with the Texas Treasury
  2. It must appear on TDI's list of eligible surplus lines insurers Correct answer.
  3. It must be owned by a Texas-domiciled company
  4. It must be admitted as an authorized insurer in at least one other state

Explanation

A surplus lines insurer must be on TDI's eligible surplus lines insurer list. The insurer is not admitted in Texas but must meet TDI's eligibility standards. An agent may not place surplus lines business with an insurer that is not on the list.

Question 48Texas Insurance Laws, Rules, and Regulations

A company adjusts claims for an insurer but is not itself an insurer. Under Texas law, this third-party administrator must:

  1. Register only if it handles more than 1,000 claims per year
  2. File its administrator agreement with the Texas Secretary of State
  3. Hold a license or certificate of authority from TDI Correct answer.
  4. Be owned by the insurer whose claims it handles

Explanation

A third-party administrator that adjusts claims for an insurer must hold a license or certificate of authority from TDI. Texas regulates TPAs to ensure proper claims handling. The TPA is not required to be owned by the insurer.

Question 49Texas Insurance Laws, Rules, and Regulations

TDI conducts a market conduct examination of an insurer. The primary purpose of this examination is to:

  1. Determine the insurer's tax liability
  2. Evaluate business practices and compliance with Texas law Correct answer.
  3. Review the insurer's solvency only
  4. Set the insurer's rates for the coming year

Explanation

A market conduct examination reviews an insurer's business practices, including marketing, underwriting, claims, and compliance with Texas law. It is not a rate-setting or tax proceeding. Solvency is addressed through financial examinations.

Question 50Texas Insurance Laws, Rules, and Regulations

The Texas Commissioner of Insurance finds that an insurer is engaging in an unfair practice. Which action may the Commissioner take?

  1. Suspend the insurer's policyholders' coverage automatically
  2. Refer the matter to the Texas Supreme Court
  3. Require the insurer to merge with an admitted carrier
  4. Issue a cease and desist order against the insurer Correct answer.

Explanation

The Commissioner may issue a cease and desist order to stop an insurer from engaging in an unfair practice. The order is an administrative enforcement tool. The Commissioner may also seek penalties and other remedies.