18 Free Texas Policy Provisions & Contract Law Practice Questions (2026)
How to Use This Policy Provisions Set
Policy Provisions and Contract Law is 13 of the 130 scored questions, and it is the block where candidates who studied with national material tend to lose marks they did not expect to lose. The contract theory is the same in every state. The notice periods for cancellation and nonrenewal are not — those come from Texas law, and the exam asks about the Texas versions.
The rest of the block is legal doctrine applied to small stories. An applicant who says something untrue, an agent who promises something the policy does not cover, an insurer that accepts premiums for years and then objects. Each has a doctrine attached, and the exam wants the name of the doctrine, not your instinct about who deserves to win.
These 18 questions come from LanePrep's Texas P&C quiz bank: the characteristics that define an insurance contract, the doctrines that decide whether a statement or a promise binds anyone, and the provisions that determine what actually gets paid when two policies or a mortgage holder are involved.
Name the doctrine before you pick. Most wrong answers here are outcomes that feel fair. The right answer is the one the doctrine produces.
Practice Questions 1-6: What Makes an Insurance Contract
Four characteristics define an insurance contract and the exam tests them by description rather than by name: only one side wrote it, only one side makes an enforceable promise, the amounts exchanged are wildly unequal, and payment depends on conditions being met. Recognise the description, then supply the word.
Question 1 (Chapter 3)
Which of the following is a characteristic of an insurance contract that means only the insurer drafts the policy language, and any ambiguity is interpreted in favor of the insured?
- A) Aleatory
- B) Unilateral
- C) Contract of adhesion
- D) Conditional
Show answer & explanation
Answer: C
A contract of adhesion is drafted entirely by one party (the insurer) and offered on a take-it-or-leave-it basis. Because the insured has no ability to negotiate the terms, courts apply the doctrine of contra proferentem — ambiguities are construed against the drafter (insurer) and in favor of the insured.
Question 2 (Chapter 3)
Tom pays his auto insurance premium of $1,200 per year. After an accident, his insurer pays $45,000 to settle a liability claim against him. This exchange illustrates which characteristic of insurance contracts?
- A) Unilateral contract
- B) Aleatory contract
- C) Contract of adhesion
- D) Conditional contract
Show answer & explanation
Answer: B
An aleatory contract is one in which the values exchanged by the parties are unequal and depend on an uncertain event. Tom paid $1,200 in premium but received a $45,000 benefit — or he might have received nothing if no loss occurred. This element of chance, where one party may receive substantially more than they pay, is the hallmark of an aleatory contract.
Question 3 (Chapter 3)
After paying her premium, an insured is not required to do anything further unless a loss occurs. Only the insurer has an enforceable promise to pay covered claims. This describes which characteristic of an insurance contract?
- A) Aleatory contract
- B) Bilateral contract
- C) Unilateral contract
- D) Executory contract
Show answer & explanation
Answer: C
An insurance contract is unilateral because only one party — the insurer — makes a legally enforceable promise (to pay covered claims). Once the insured pays the premium, they are not legally obligated to do anything further. The insured may choose to cancel at any time, but the insurer is bound by its promise for the duration of the policy period.
Question 4 (Chapter 3)
A policyholder's property insurance policy contains a clause stating that coverage depends on the insured complying with certain duties after a loss, such as providing proof of loss and cooperating with the investigation. This illustrates which characteristic of an insurance contract?
- A) Aleatory nature
- B) Adhesion nature
- C) Conditional nature
- D) Unilateral nature
Show answer & explanation
Answer: C
An insurance contract is conditional because the insurer's obligation to pay a claim depends on the insured meeting certain conditions, such as paying premiums, providing timely notice of loss, submitting proof of loss, and cooperating with the investigation. If the insured fails to meet these conditions, the insurer may deny the claim. The contract's performance is contingent upon the fulfillment of these conditions.
Question 5 (Chapter 3)
Which of the following is NOT a required element for a valid insurance contract?
- A) Offer and acceptance
- B) Consideration from both parties
- C) A written signature by the insured on the policy
- D) Legal purpose
Show answer & explanation
Answer: C
The four essential elements of a valid contract are: (1) offer and acceptance (agreement), (2) consideration (exchange of value — premium for the promise to pay claims), (3) competent parties (legal capacity to contract), and (4) legal purpose (the contract must not be for an illegal purpose). A written signature on the policy document itself is not required — the application and premium payment typically form the agreement.
Question 6 (Chapter 3)
A 16-year-old purchases a renters insurance policy without parental consent. Six months later, the minor decides they no longer want the coverage. What is the status of this contract?
- A) The contract is void because a minor cannot enter into any contract
- B) The contract is voidable at the option of the minor, but the insurer cannot void it
- C) The contract is fully enforceable because insurance is a necessity
- D) The contract is void because the insurer failed to verify the applicant's age
Show answer & explanation
Answer: B
A contract entered into by a minor is voidable, not void. The minor has the option to disaffirm (cancel) the contract, but the other party (the insurer) cannot void it solely on the basis of the minor's age. A void contract has no legal effect from the start, while a voidable contract is valid until one party with the right to do so chooses to void it.
Practice Questions 7-12: Representations, Concealment, Waiver and Estoppel
What was said, by whom, and whether it binds. Representation against warranty, concealment against misrepresentation, and the pair that trips people up most: waiver and estoppel, where an insurer loses a defence by its own conduct rather than by anything written down.
Question 7 (Chapter 3)
Maria applies for a homeowners policy. On the application, she states her home has a security system. This statement is believed to be true at the time but turns out to be inaccurate. In insurance contract law, Maria's statement on the application is considered a:
- A) Warranty, which must be literally true or the contract is automatically void
- B) Representation, which must be substantially true and, if material, could allow the insurer to void the policy
- C) Concealment, because she hid the truth from the insurer
- D) Condition precedent that must be met before coverage attaches
Show answer & explanation
Answer: B
Statements made on an insurance application are representations, not warranties. Representations need only be substantially true. If a representation is found to be materially false — meaning it would have influenced the insurer's underwriting decision — the insurer may void the policy. Warranties, by contrast, are strict guarantees found in the policy itself and must be literally true.
Question 8 (Chapter 3)
An applicant states on their insurance application that they have never had a DUI, but they actually had one five years ago. The insurer issues the policy. After a loss, the insurer discovers the misrepresentation. What is the most likely outcome?
- A) The claim is paid in full because the policy was already issued
- B) The insurer may void the policy if the misrepresentation was material to the underwriting decision
- C) The insurer must pay the claim but can increase premiums
- D) The policy is automatically void from inception regardless of materiality
Show answer & explanation
Answer: B
A material misrepresentation is one that would have changed the insurer's underwriting decision. If the DUI history would have resulted in a different premium, coverage terms, or declination, the insurer may void the policy. The misrepresentation must be material — not every inaccuracy justifies voiding.
Question 9 (Chapter 3)
An applicant for life insurance knows he has been diagnosed with a serious heart condition but deliberately fails to mention it on the application. The insurer does not ask about heart conditions specifically. This is an example of:
- A) A breach of warranty
- B) An innocent misrepresentation
- C) Concealment of a material fact
- D) Waiver by the insurer
Show answer & explanation
Answer: C
Concealment is the intentional failure to disclose a material fact that the applicant knows or should know is relevant to the insurer's decision. Under the principle of utmost good faith (uberrima fides), both parties must disclose all material information. Even if the insurer did not ask specifically about heart conditions, the applicant has a duty to disclose known material facts that would affect underwriting.
Question 10 (Chapter 3)
An insurer accepts premium payments from an insured for three consecutive years despite the insured's failure to comply with a policy condition requiring annual property inspections. After a loss in year four, the insurer attempts to deny the claim based on the inspection requirement. Which doctrine most likely prevents the insurer from denying the claim?
- A) Estoppel
- B) Waiver
- C) Subrogation
- D) Indemnity
Show answer & explanation
Answer: B
Waiver is the voluntary and intentional relinquishment of a known right. By knowingly accepting premiums for three years while aware the insured was not complying with the inspection condition, the insurer has effectively waived its right to enforce that condition. Waiver requires knowledge of the right being given up, whereas estoppel focuses on detrimental reliance by the other party.
Question 11 (Chapter 3)
An insurance agent verbally promises a commercial client that flood damage will be covered under their standard property policy. The written policy excludes flood. A flood occurs and the claim is denied. The client sues. Under the doctrine most favorable to the client, what is the likely result?
- A) The written policy controls because of the parol evidence rule; the claim is denied
- B) The agent's verbal promise overrides the written policy in all cases
- C) The client may recover under the doctrine of estoppel if they relied on the agent's promise to their detriment
- D) The policy is automatically reformed to include flood coverage
Show answer & explanation
Answer: C
Under the doctrine of estoppel, if an agent makes a representation that the insured reasonably relies upon, the insurer may be prevented (estopped) from denying coverage. However, the parol evidence rule generally favors the written contract. The outcome depends on the specific facts and jurisdiction.
Question 12 (Chapter 3)
An insurance agent verbally tells a commercial client that their policy covers earthquake damage. The written policy clearly excludes earthquakes. The client later suffers earthquake damage and presents the agent's verbal promise as evidence. Under the parol evidence rule, what is the most likely outcome?
- A) The verbal promise overrides the written policy because the agent has apparent authority
- B) The written policy controls, and the verbal promise is generally inadmissible to contradict the clear written terms of the integrated contract
- C) The court will average the two positions and pay 50% of the claim
- D) The policy is automatically reformed to include earthquake coverage
Show answer & explanation
Answer: B
The parol evidence rule prevents the introduction of prior or contemporaneous oral agreements to contradict the terms of a final written contract. Since the written policy clearly excludes earthquake damage, the agent's verbal promise is generally inadmissible to modify the written terms. The client may have a separate claim against the agent for negligent misrepresentation, but the policy exclusion stands.
Practice Questions 13-18: Clauses That Decide the Claim
The provisions that decide the cheque. Two policies on one building, a mortgage holder on a building the insured burned down, a disagreement about value with an appraisal clause — plus the Texas cancellation and nonrenewal notice requirements, which are pure state law and pure marks.
Question 13 (Chapter 3)
A property is insured under two policies: Policy X with a $200,000 limit and Policy Y with a $300,000 limit. Both contain a pro rata other insurance clause. A covered loss of $100,000 occurs. How much does Policy X pay?
- A) $50,000
- B) $40,000
- C) $100,000
- D) $60,000
Show answer & explanation
Answer: B
Under a pro rata other insurance clause, each insurer pays a proportional share of the loss based on its policy limit relative to the total insurance available. Policy X's share = ($200,000 / $500,000) × $100,000 = $40,000. Policy Y would pay ($300,000 / $500,000) × $100,000 = $60,000. This prevents the insured from profiting by collecting the full amount from each policy.
Question 14 (Chapter 3)
A property owner insures a building for $500,000. The policy contains an excess other insurance clause. The owner also has a second policy on the same building for $500,000, which contains a pro rata other insurance clause. A $200,000 loss occurs. How do the policies respond?
- A) Each policy pays $100,000 on a pro rata basis
- B) The pro rata policy pays first up to $200,000; the excess policy pays nothing
- C) The excess policy pays first up to $200,000; the pro rata policy pays nothing
- D) Both policies deny the claim because of conflicting other insurance clauses
Show answer & explanation
Answer: B
When one policy has a pro rata clause and another has an excess clause, the pro rata policy is considered primary and pays first. The excess policy only pays if the loss exceeds the primary policy's limit. Since the $200,000 loss is within the pro rata policy's $500,000 limit, the pro rata policy pays the full $200,000 and the excess policy pays nothing. This hierarchy prevents coverage disputes between insurers.
Question 15 (Chapter 3)
A commercial property has a mortgage. The property policy contains a standard mortgage clause (loss payee clause). The insured commits arson, destroying the building. Can the mortgage holder (bank) still collect under the policy?
- A) No, because the insured's arson voids the entire policy for all parties
- B) Yes, because the standard mortgage clause protects the mortgagee's interest independently, even if the insured's claim is denied due to fraud
- C) Only if the mortgage holder can prove they had no knowledge of the arson
- D) No, because arson is a criminal act that invalidates all insurance coverage
Show answer & explanation
Answer: B
The standard mortgage clause (also called a union mortgage clause) creates a separate, independent contract between the insurer and the mortgagee. The mortgagee's coverage cannot be invalidated by the acts or neglect of the insured/owner. Even if the insured commits arson and their claim is denied, the mortgage holder can still collect — as long as the mortgagee had no involvement in the fraud. The insurer may then subrogate against the insured.
Question 16 (Chapter 3)
An insured and an insurer disagree on the value of a covered property loss. The policy contains an appraisal clause. What is the correct procedure under this clause?
- A) The insurer's estimate is final and binding
- B) Each party selects a competent appraiser, and the two appraisers select an umpire; agreement by any two of the three is binding
- C) The dispute must be resolved in court before any payment is made
- D) The insured must accept the insurer's estimate or cancel the policy
Show answer & explanation
Answer: B
The appraisal clause provides a method to resolve disputes over the amount of a loss (not coverage disputes). Each party selects an independent, competent appraiser. The two appraisers then select a neutral umpire. If the two appraisers cannot agree on the loss amount, the umpire makes the deciding determination. Agreement by any two of the three (two appraisers, or one appraiser and the umpire) is binding on both parties.
Question 17 (Chapter 3)
An insurer cancels a homeowner's policy mid-term. Under Texas law, what is the insurer generally required to provide?
- A) Verbal notice to the insured at least 7 days before cancellation
- B) Written notice to the insured with the required number of days' advance notice as specified by Texas statute, along with the reason for cancellation
- C) No notice is required if the insurer refunds the unearned premium
- D) Notice only to the insurance agent, who must then inform the insured
Show answer & explanation
Answer: B
Under Texas law, an insurer must provide written notice of cancellation to the insured with the statutorily required number of days' advance notice (which varies depending on the reason for cancellation — for example, 10 days for nonpayment of premium, or longer for other reasons). The notice must state the reason for cancellation. These requirements protect consumers from arbitrary or surprise cancellations.
Question 18 (Chapter 3)
An insurer decides not to renew a homeowner's policy at the end of its term. Under Texas nonrenewal requirements, what must the insurer do?
- A) Simply allow the policy to lapse with no notice required
- B) Provide written notice of nonrenewal at least 30 days before the policy expiration date
- C) Offer the insured an alternative policy at a higher premium
- D) Obtain approval from the Texas Department of Insurance before nonrenewal
Show answer & explanation
Answer: B
Texas law requires insurers to provide written notice of nonrenewal to the insured at least 30 days before the policy expiration date for most property and casualty policies. This gives the insured adequate time to find replacement coverage. Unlike cancellation, nonrenewal occurs at the natural end of the policy term, but advance written notice is still legally required to protect consumers.
The Contract Law Mistakes That Cost Marks
Answering what is fair instead of what the doctrine says. The standard mortgage clause protects the lender even when the insured commits arson. That feels wrong and is correct, and the exam asks it precisely because of the gap.
Treating a representation as a warranty. A representation is believed true when made and only voids the policy if it was material and false. A warranty must be literally true. Candidates who blur them void policies the exam does not void.
Mixing up waiver and estoppel. Waiver is giving up a known right on purpose. Estoppel is being barred from asserting a right because someone relied on your conduct. The scenario with years of accepted premiums is estoppel.
Reaching for the general rule on Texas notice periods. Cancellation and nonrenewal notice is state law, and a national practice bank will give you another state's number with complete confidence.
The Texas statute chapters go deeper on the state-law side — the 18 Texas insurance law questions cover licensing, TDI deadlines and unfair claim settlement practices. All nine chapters are audio lessons as well; 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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