18 Free Texas Policy Cancellation & Claims Practice Questions (2026)
How to Use This Cancellation and Claims Set
Advanced Policy Provisions is 12 of the 130 scored questions, and it is the block about aftermath. Chapter 3 asks how a policy is formed and what the doctrines mean; this one asks what happens once a policy ends badly or a loss has already occurred.
Two things make it worth drilling. The cancellation and nonrenewal notice periods are Texas law, so a national question bank will confidently give you another state's number. And the premium refund questions want a figure: pro rata when the insurer cancels, short rate when the insured does, and the arithmetic differs.
These 18 questions come from LanePrep's Texas P&C quiz bank and cover how policies end and what gets refunded, what the insured owes the insurer after a loss, and how other insurance, subrogation waivers and mortgage clauses decide who finally pays.
Notice who is cancelling. Insurer or insured changes the notice requirement, the refund method and the answer.
Practice Questions 1-6: Cancellation, Nonrenewal and Refunds
How a policy ends, and what comes back. Texas sets different notice periods for cancellation and for nonrenewal, and the reason for cancelling changes them again. The refund is pro rata when the insurer ends it and short rate when the insured does — the insured pays for the privilege of leaving early.
Question 1 (Chapter 6)
An insurer decides to cancel a homeowners policy mid-term because the insured failed to pay the renewal premium. In Texas, how many days' advance written notice must the insurer provide to the insured before cancellation for nonpayment of premium?
- A) 5 days
- B) 10 days
- C) 30 days
- D) 60 days
Show answer & explanation
Answer: B
In Texas, when an insurer cancels a policy for nonpayment of premium, a minimum of 10 days' advance written notice is required. For cancellation for reasons other than nonpayment (such as material misrepresentation or increased hazard), the insurer must generally provide at least 30 days' notice. The insured can cancel at any time without a mandatory notice period.
Question 2 (Chapter 6)
An insurer decides not to renew a personal auto policy at the end of its current term. In Texas, the insurer must provide the insured with written notice of nonrenewal at least how many days before the policy expiration date?
- A) 10 days
- B) 20 days
- C) 30 days
- D) 60 days
Show answer & explanation
Answer: C
In Texas, insurers must provide at least 30 days' written notice of nonrenewal before the policy expiration date for personal auto and homeowners policies. This gives the insured adequate time to find replacement coverage. Nonrenewal is different from cancellation — nonrenewal occurs at the end of the policy term, while cancellation terminates coverage during the policy term.
Question 3 (Chapter 6)
A Texas homeowner's insurer cancels her policy mid-term because she installed a trampoline without notifying the insurer, which constitutes an increased hazard. How many days' advance written notice must the insurer provide before cancellation takes effect?
- A) 10 days
- B) 15 days
- C) 30 days
- D) 60 days
Show answer & explanation
Answer: C
In Texas, when an insurer cancels a policy for reasons OTHER than nonpayment of premium (such as increased hazard, material misrepresentation, or substantial change in risk), the insurer must provide at least 30 days' advance written notice. For nonpayment of premium, only 10 days' notice is required. This distinction is a key Texas-specific cancellation rule tested on the exam.
Question 4 (Chapter 6)
An insured cancels their auto policy mid-term. The insurer returns the unearned premium using the pro rata method. The annual premium was $1,200 and the policy was in force for 3 months. What refund does the insured receive?
- A) $900
- B) $1,200
- C) $800
- D) $600
Show answer & explanation
Answer: A
Under the pro rata cancellation method, the insured receives a full refund of the unearned premium. The policy was in force for 3 of 12 months, so the earned premium is $300. The refund is $1,200 - $300 = $900. Note: if the insurer uses a short-rate cancellation, the refund would be less due to a penalty.
Question 5 (Chapter 6)
An insured requests cancellation of their commercial property policy effective immediately. The annual premium was $2,400 and the policy has been in force for 6 months. The insurer uses the short-rate cancellation method. Compared to a pro rata refund, the insured will receive:
- A) The same refund amount as pro rata
- B) A larger refund than pro rata
- C) A smaller refund than pro rata because of a cancellation penalty
- D) No refund at all
Show answer & explanation
Answer: C
When the insured initiates cancellation, the insurer may use the short-rate cancellation method, which includes a penalty factor. The short-rate refund is less than the pro rata refund because the insurer retains a larger portion of the premium to cover administrative costs. Under pro rata cancellation (typically used when the insurer cancels), the insured receives a full proportional refund of unearned premium.
Question 6 (Chapter 6)
A commercial property policy has an annual premium of $3,600. The insurer cancels the policy mid-term after 8 months due to the insured's material misrepresentation on the application. Using the pro rata method, what refund is the insured entitled to?
- A) $1,200
- B) $2,400
- C) $900
- D) $0 — no refund is owed because of misrepresentation
Show answer & explanation
Answer: A
When the insurer initiates cancellation, the pro rata method is used, and the insured receives a full refund of unearned premium with no penalty. The policy was in force for 8 of 12 months, so earned premium is $3,600 x (8/12) = $2,400. The unearned premium refund is $3,600 - $2,400 = $1,200. Even though cancellation was due to misrepresentation, the insurer still owes the pro rata unearned premium refund.
Practice Questions 7-12: Duties After a Loss, Appraisal and Suit Clauses
What the insured owes after a loss. Prompt notice, proof of loss, cooperation and protecting the property from further damage are conditions, not courtesies. Appraisal resolves disagreements about amount, and the suit against us clause limits how long the insured has to sue.
Question 7 (Chapter 6)
After a fire damages a commercial building, the insured's policy requires several duties after a loss. Which of the following is NOT a standard duty after a loss under a commercial property policy?
- A) Give prompt notice of the loss to the insurer
- B) Protect the property from further damage
- C) Submit a signed, sworn proof of loss within 60 days
- D) Hire a public adjuster before contacting the insurer
Show answer & explanation
Answer: D
Standard duties after a loss include: giving prompt notice to the insurer, protecting property from further damage, cooperating with the investigation, providing a signed sworn proof of loss (typically within 60 days if requested), and making damaged property available for inspection. Hiring a public adjuster is the insured's option but is NOT a required duty under the policy.
Question 8 (Chapter 6)
A homeowner's insurance policy contains a clause requiring disputes over the amount of a loss to be resolved by each party selecting an appraiser, with the two appraisers then selecting an umpire. This provision is known as:
- A) Arbitration clause
- B) Appraisal provision
- C) Mediation clause
- D) Subrogation provision
Show answer & explanation
Answer: B
The appraisal provision is used to resolve disputes over the amount of a loss (not coverage disputes). Each party selects an appraiser, and if they cannot agree, an umpire is chosen. Agreement by any two of the three is binding. This is different from arbitration, which can address broader disputes including coverage questions.
Question 9 (Chapter 6)
An insured and their property insurer disagree about the value of a covered water damage loss. The insured believes the loss is $80,000, while the insurer's adjuster values it at $50,000. The policy's appraisal clause is invoked. What happens next?
- A) The insured must accept the insurer's valuation
- B) The dispute goes directly to civil court
- C) Each party selects an appraiser, and the two appraisers select an umpire; agreement by any two is binding
- D) The Texas Department of Insurance assigns a mediator
Show answer & explanation
Answer: C
Under the appraisal clause, each party selects a competent, independent appraiser. The two appraisers then select an umpire. If the two appraisers agree on the amount of loss, that amount is binding. If they cannot agree, the umpire's agreement with either appraiser creates a binding decision. The appraisal process addresses only the amount of the loss, not coverage disputes.
Question 10 (Chapter 6)
A homeowners policy contains a suit against us clause. The insured suffers a covered loss and disagrees with the insurer's settlement offer. According to this clause, the insured must file any lawsuit against the insurer within what time frame?
- A) 6 months from the date of loss
- B) 1 year after the date of loss
- C) 2 years after the date of loss
- D) There is no time limit for filing suit
Show answer & explanation
Answer: B
The suit against us clause (also called legal action clause) typically requires the insured to file any lawsuit within one year after the date of loss (or within one year after the insured complies with all policy conditions, depending on the policy form). This provision also requires the insured to have complied with all terms of the policy before bringing legal action.
Question 11 (Chapter 6)
An applicant for property insurance deliberately conceals that a previous insurer cancelled their policy for arson investigation. The new insurer discovers this after a large fire loss. Under the concealment and fraud provision, the insurer may:
- A) Reduce the claim payment by 50%
- B) Void the policy from inception and deny the claim entirely
- C) Pay the claim but increase future premiums
- D) Pay the claim and then cancel the policy going forward
Show answer & explanation
Answer: B
The concealment and fraud provision allows the insurer to void the policy from its inception if the insured intentionally concealed or misrepresented material facts. Concealment of a prior arson investigation is a material misrepresentation that would have affected the insurer's underwriting decision. Voiding the policy means it is treated as if it never existed, and all claims are denied.
Question 12 (Chapter 6)
An insured has a property policy with a replacement cost value (RCV) provision. Their 10-year-old roof is destroyed by a covered windstorm. The original roof cost $15,000, and a new roof of like kind and quality costs $25,000. How much will the insurer pay (before deductible)?
- A) $15,000 — the original cost of the roof
- B) $25,000 — the cost to replace with like kind and quality
- C) $10,000 — the depreciated value
- D) $20,000 — the average of original and replacement cost
Show answer & explanation
Answer: B
Replacement cost value (RCV) pays the cost to repair or replace damaged property with materials of like kind and quality, without deduction for depreciation. The insured receives $25,000 for the new roof. Under actual cash value (ACV), depreciation would be deducted.
Practice Questions 13-18: Other Insurance, Subrogation and Mortgagees
Who ultimately pays. Two policies on one risk share by a stated method, primary and excess stack in a fixed order, and a waiver of subrogation signed before a loss gives away the insurer's right to recover — which is why leases and construction contracts contain them.
Question 13 (Chapter 6)
A homeowner has two property insurance policies covering the same dwelling: Policy A with a $300,000 limit and Policy B with a $200,000 limit. A covered fire causes $100,000 in damage. Both policies contain a pro rata other insurance clause. How much will Policy A pay?
- A) $50,000
- B) $60,000
- C) $100,000
- D) $75,000
Show answer & explanation
Answer: B
Under a pro rata other insurance clause, each insurer pays in proportion to its policy limit relative to the total coverage. Policy A's share: $300,000 / ($300,000 + $200,000) = 60%. Policy A pays 60% of $100,000 = $60,000. Policy B pays the remaining $40,000 (40%). The pro rata clause prevents the insured from profiting by collecting the full amount from each insurer.
Question 14 (Chapter 6)
An insured has a personal auto policy (primary) and a personal umbrella policy (excess). The insured causes an accident resulting in $500,000 in bodily injury damages. The auto policy has a $250,000 per-person liability limit. Under the primary/excess other insurance clause, how are the claims paid?
- A) Each policy pays $250,000
- B) The umbrella pays the entire $500,000
- C) The auto policy pays $250,000 first, then the umbrella pays the remaining $250,000
- D) The insured chooses which policy to use
Show answer & explanation
Answer: C
Under a primary/excess other insurance arrangement, the primary policy (auto) pays first up to its limit ($250,000). The excess policy (umbrella) then pays the remaining amount up to its own limit. The excess policy does not begin to pay until the primary policy's limit is exhausted. This is the standard relationship between underlying liability policies and umbrella/excess policies.
Question 15 (Chapter 6)
A driver insured by Company A is rear-ended by a driver insured by Company B. Company A pays $15,000 to repair its insured's vehicle under collision coverage. Company A then seeks reimbursement from Company B's insurer because the Company B driver was at fault. This process is called:
- A) Contribution
- B) Indemnification
- C) Subrogation
- D) Arbitration
Show answer & explanation
Answer: C
Subrogation is the right of an insurer, after paying a claim, to step into the shoes of the insured and recover the amount paid from the responsible third party (or their insurer). This prevents the insured from collecting twice and holds the at-fault party responsible. The insured must cooperate with the subrogation process and cannot do anything to impair the insurer's right to recovery.
Question 16 (Chapter 6)
A commercial tenant signs a lease that includes a waiver of subrogation clause in favor of the landlord. The tenant's property insurer pays a $50,000 fire damage claim caused by the landlord's faulty wiring. Can the insurer subrogate against the landlord?
- A) Yes, because the insurer always has the right to subrogate
- B) Yes, because the waiver only applies between the tenant and landlord, not the insurer
- C) No, because the waiver of subrogation clause prevents the insurer from recovering against the landlord
- D) No, but only if the landlord carries their own property insurance
Show answer & explanation
Answer: C
A waiver of subrogation clause in a lease or contract prevents the insurer from pursuing recovery against the party named in the waiver. Since the tenant agreed to waive subrogation rights against the landlord, the insurer (who stands in the shoes of the insured) is also bound by that waiver. The insurer cannot subrogate against the landlord regardless of fault. This waiver must be agreed to before the loss occurs to be valid.
Question 17 (Chapter 6)
A homeowner has a mortgage on their property. The homeowners policy includes a standard mortgage clause (union mortgage clause). The insured commits arson and the insurer denies the claim. Can the mortgage company (mortgagee) still collect for the damage to the property?
- A) No, because the insured's fraud voids coverage for everyone
- B) No, because the mortgage company is not a named insured
- C) Yes, because the standard mortgage clause protects the mortgagee's interest even if the insured's claim is denied
- D) Yes, but only up to 50% of the mortgage balance
Show answer & explanation
Answer: C
The standard (union) mortgage clause creates a separate, independent contract between the insurer and the mortgagee. The mortgagee's coverage cannot be invalidated by acts of the insured (such as arson or fraud). This is different from a simple loss payable clause, which merely directs payment to the mortgagee and offers no independent protection — under a loss payable clause, the mortgagee's rights are the same as the insured's.
Question 18 (Chapter 6)
An insured sells their home and wants to transfer their existing homeowners insurance policy to the new buyer. Under the assignment clause in a standard property policy, can the policy be assigned without the insurer's consent?
- A) Yes, property policies are freely assignable like auto policies
- B) Yes, but only if the new owner agrees to pay the remaining premium
- C) No, assignment of a property policy requires the insurer's written consent
- D) No, property policies can never be assigned under any circumstances
Show answer & explanation
Answer: C
Property and casualty insurance policies are personal contracts, meaning they insure the person, not just the property. The assignment clause states that the policy cannot be transferred (assigned) to another party without the written consent of the insurer. This is because the insurer underwrote the policy based on the original insured's risk profile. After a loss, however, the insured may freely assign the right to receive claim proceeds.
The Cancellation and Claims Mistakes That Cost Marks
Using one notice period for everything. Texas treats cancellation and nonrenewal differently, and nonpayment differently again. The question always tells you which is happening.
Refunding pro rata when the insured cancelled. Insured-requested cancellation is short rate, which returns less than the unused portion. Pro rata applies when the insurer ends the policy. Candidates who reverse it get a number that is offered as an answer.
Reading appraisal as arbitration. Appraisal settles the amount of a loss, not whether it is covered. A coverage dispute does not go to appraisal, however much both sides disagree.
Assuming a policy follows the property. Insurance is a personal contract and cannot be assigned to a buyer without the insurer's consent. The new owner has no coverage, which surprises people in real life and on the exam.
The formation side sits in the policy provisions and contract law set. All nine chapters are audio lessons — chapter 1 is free, no signup.
Question counts and content weighting come from the Pearson VUE Texas examination content outline. Read September 2026.
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