Chapter Summaries — Quick Reference
The 10 most important points from each chapter. Review before your exam.
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Chapter 1: Types of Property Policies
- HO-3 (Special Form) covers the dwelling on an open-peril basis but personal property on a named-peril basis — this is the most common homeowners policy.
- HO-5 (Comprehensive Form) provides open-peril coverage for both the dwelling and personal property, making it the broadest HO form.
- HO-4 is the renters policy covering only personal property (no dwelling), while HO-6 is the condo unit-owners policy covering interior walls and personal property.
- HO-8 (Modified Coverage Form) is designed for older homes where replacement cost exceeds market value, and it pays on a repair-cost or market-value basis instead of full replacement cost.
- Dwelling Fire policies (DP-1, DP-2, DP-3) are used for properties that do not qualify for homeowners coverage, such as rental properties, vacant homes, or seasonal dwellings.
- Named-peril policies only cover losses specifically listed in the policy, while open-peril (special form) policies cover all risks of loss except those specifically excluded.
- The National Flood Insurance Program (NFIP) provides flood coverage through Write Your Own (WYO) insurers, with a standard 30-day waiting period before coverage takes effect.
- NFIP maximum coverage limits are $250,000 for a residential dwelling and $100,000 for personal property — excess flood must be purchased separately.
- Commercial property uses three Causes of Loss forms — Basic (named perils only), Broad (adds more perils), and Special (open peril) — that attach to the Building and Personal Property Coverage Form (BPP).
- Standard homeowners policies exclude flood, earthquake, war, nuclear hazard, ordinance or law costs, and intentional loss — these are the most commonly tested exclusions.
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Chapter 2: Insurance Terms & Related Concepts
- Insurable interest must exist at the time of loss in property insurance, but at the time of policy inception in life insurance.
- The principle of indemnity means the insured should be restored to their pre-loss financial condition — no better, no worse.
- Actual Cash Value (ACV) equals replacement cost minus depreciation, while replacement cost pays the full cost to replace with like kind and quality without deducting for depreciation.
- The coinsurance formula is: (Amount Carried / Amount Required) x Loss = Payment — if you carry less than the required percentage, you become a co-insurer and pay a penalty.
- The standard coinsurance requirement is 80%, meaning you must insure the property for at least 80% of its value to avoid a coinsurance penalty.
- Subrogation allows the insurer to recover from a negligent third party after paying a claim — the insured cannot waive subrogation rights after a loss without the insurer's consent.
- A valued policy pays a predetermined amount agreed upon at inception regardless of actual loss value, while an open (unvalued) policy pays the actual amount of the loss up to policy limits.
- Per-occurrence deductibles apply separately to each loss event, while aggregate deductibles accumulate all losses during the policy period until the deductible amount is met.
- Utmost good faith (uberrima fides) requires both the insured and insurer to deal honestly and disclose all material facts relevant to the insurance contract.
- Pro rata distribution divides a loss among multiple insurers based on the proportion each insurer's policy limit bears to the total of all policy limits.
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Chapter 3: Policy Provisions & Contract Law
- A valid insurance contract requires four elements: offer and acceptance, consideration (premium and promise to pay), competent parties, and legal purpose.
- Insurance contracts are contracts of adhesion, meaning one party (the insurer) writes the terms — any ambiguity in the policy language is interpreted in favor of the insured.
- A void contract has no legal effect from the beginning (e.g., insuring an illegal activity), while a voidable contract is valid but one party has the right to reject it (e.g., misrepresentation).
- Representations are statements believed to be true, and only a material misrepresentation can void a policy — warranties are statements guaranteed to be true and any breach can void coverage.
- Waiver is the voluntary giving up of a known right, while estoppel prevents a party from asserting a right because their previous actions were inconsistent with that right.
- The parol evidence rule prevents oral statements from changing the written terms of the insurance contract once the policy is issued.
- Insurance contracts are aleatory (unequal exchange is possible), unilateral (only the insurer makes an enforceable promise), and conditional (obligations depend on certain conditions being met).
- After a loss, the insured must give prompt notice, protect the property from further damage, cooperate with the investigation, and submit a sworn proof of loss if requested.
- Concealment is the intentional failure to disclose a material fact — if proven, the insurer can void the policy from inception.
- The liberalization clause automatically applies any broadened coverage the insurer adopts to existing policies without requiring a policy change or additional premium.
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Chapter 4: Types of Casualty Policies
- Texas minimum auto liability limits are 30/60/25 — $30,000 per person bodily injury, $60,000 per accident bodily injury, and $25,000 per accident property damage.
- The Personal Auto Policy (PAP) has four parts: Part A (Liability), Part B (Medical Payments), Part C (Uninsured Motorists), and Part D (Damage to Your Auto — Collision and Other Than Collision).
- Commercial General Liability (CGL) Coverage A covers bodily injury and property damage liability, Coverage B covers personal and advertising injury, and Coverage C covers medical payments.
- CGL policies can be written on an occurrence basis (covers incidents during the policy period regardless of when the claim is filed) or claims-made basis (covers claims filed during the policy period).
- An umbrella policy provides excess liability coverage above underlying policies and drops down to cover some claims not covered by underlying insurance, subject to a self-insured retention (SIR).
- Texas Workers' Compensation benefits include Temporary Income Benefits (TIBs) at 70% of the difference between pre-injury and post-injury wages, up to 104 weeks.
- In Texas, workers' compensation is elective — employers who opt out (non-subscribers) lose three common-law defenses: contributory negligence, assumption of risk, and fellow-servant rule.
- Personal Injury Protection (PIP) in Texas must be offered by the insurer but can be rejected by the insured in writing — it covers medical expenses and lost income regardless of fault.
- Uninsured Motorist (UM) coverage pays when the at-fault driver has no insurance; Underinsured Motorist (UIM) coverage pays when the at-fault driver's limits are insufficient.
- Collision coverage pays for damage to your vehicle from contact with another vehicle or object, while Other Than Collision (comprehensive) covers theft, fire, hail, flood, and animal strikes.
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Chapter 5: Advanced Insurance Terms
- The four risk management techniques are avoidance (eliminate the risk), reduction (minimize frequency or severity), transfer (shift to another party via insurance or contract), and retention (self-insure).
- Negligence requires four elements: duty of care owed, breach of that duty, proximate causation linking the breach to the harm, and actual damages suffered by the plaintiff.
- Texas follows a modified comparative fault rule (proportionate responsibility) — a claimant who is 51% or more at fault is completely barred from recovery.
- Vicarious liability (respondeat superior) holds an employer liable for the negligent acts of an employee performed within the scope of employment.
- General damages compensate for non-economic losses like pain and suffering, while special damages compensate for measurable economic losses like medical bills and lost wages.
- Punitive (exemplary) damages are designed to punish the defendant for especially reckless or intentional conduct and are not covered by standard liability insurance policies.
- GAP (Guaranteed Asset Protection) coverage pays the difference between what you owe on an auto loan and the vehicle's ACV when the car is totaled or stolen.
- Risk avoidance means not engaging in the activity at all, while risk reduction means taking steps (like installing sprinklers) to lower the potential frequency or severity of a loss.
- Nominal damages are a small token amount awarded when a legal wrong has occurred but no actual financial loss resulted.
- Transfer of risk through insurance is the most common risk management technique tested on the exam — the insured pays a premium and the insurer assumes the financial consequences of covered losses.
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Chapter 6: Advanced Policy Provisions
- When the insurer cancels a policy, the premium refund is calculated on a pro rata basis (exact unused portion); when the insured cancels, the refund uses the less favorable short-rate method (insurer keeps a penalty).
- The coinsurance penalty formula is (Did Carry / Should Carry) x Loss = Amount insurer pays — always before the deductible is applied.
- The appraisal provision resolves disputes over the amount of a loss (not coverage disputes) — each party selects an appraiser, and the two appraisers select an umpire to break ties.
- The mortgage clause (standard or union) gives the mortgage holder independent rights under the policy, meaning the lender can collect even if the insurer denies the insured's claim due to fraud or neglect.
- Other insurance clauses determine which policy pays first when multiple policies cover the same loss — common types are primary, excess, pro rata, and contribution by equal shares.
- Split limits express liability coverage as three separate amounts (e.g., 100/300/100), while a Combined Single Limit (CSL) provides one total amount that applies to any combination of bodily injury and property damage.
- Business Income coverage reimburses lost net income and continuing normal operating expenses during the period of restoration after a covered loss shuts down operations.
- The duties after loss clause requires the insured to give prompt notice, protect property from further damage, cooperate with the investigation, and submit a sworn proof of loss within 60 days if requested.
- Flat cancellation voids a policy from inception as if it never existed, and the insured receives a full premium refund with no penalty.
- Under pro rata other insurance, each insurer pays its proportional share based on its policy limit relative to the total limits of all policies covering the loss.
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Chapter 7: Texas Statutes — Common to P&C
- The Texas Department of Insurance (TDI) is headed by the Commissioner of Insurance, who is appointed by the Governor and confirmed by the Texas Senate.
- Texas insurance agents must complete 24 hours of continuing education every two years, including at least 3 hours of ethics, to maintain their license.
- Twisting is inducing a policyholder to replace an existing policy through misrepresentation — it is an unfair trade practice and can result in license revocation and fines.
- Rebating is offering anything of value not specified in the policy as an inducement to purchase insurance — both the agent giving and the person receiving the rebate can be penalized.
- Churning is the excessive replacement of insurance policies primarily to generate commissions for the agent, without benefit to the policyholder.
- Agents have a fiduciary duty to handle premiums in a trust capacity — commingling premiums with personal funds is a violation that can result in license action.
- Misrepresentation includes making false or misleading statements about a policy's terms, benefits, or dividends to induce purchase — it applies to agents and insurers alike.
- Defamation in insurance is making false statements that injure a competitor's reputation or business — it is classified as an unfair trade practice under Texas law.
- Surplus lines insurance can only be placed with non-admitted insurers after the agent conducts a diligent search and documents that the coverage is unavailable from admitted carriers in Texas.
- The TDI Commissioner has the authority to examine insurers, issue cease and desist orders, levy fines, suspend or revoke licenses, and approve or disapprove rates.
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Chapter 8: Texas Statutes — P&C Specific
- The Texas Windstorm Insurance Association (TWIA) provides wind and hail coverage in designated coastal counties for properties that cannot obtain coverage in the voluntary market.
- A WPI-8 certificate (windstorm inspection) is required before TWIA will issue or renew coverage, confirming the structure meets the Texas Windstorm Building Code.
- Texas requires insurers to offer Personal Injury Protection (PIP) on every auto policy — the insured must reject it in writing if they do not want it.
- Texas minimum auto liability limits are 30/60/25, and proof of financial responsibility is required — driving without insurance can result in fines up to $1,000 and license suspension.
- The FAIR Plan (Fair Access to Insurance Requirements) provides basic property insurance to property owners in urban areas who cannot obtain coverage in the standard market.
- Texas uses a file-and-use rating system for most property and casualty lines, meaning insurers file rates with TDI and can use them immediately unless TDI disapproves.
- The Texas Property and Casualty Insurance Guaranty Association protects policyholders when an admitted insurer becomes insolvent — it covers claims up to $300,000 per claimant.
- In Texas, employers may opt out of workers' compensation (non-subscriber), but they lose the defenses of contributory negligence, assumption of risk, and fellow-servant doctrine in employee injury lawsuits.
- Surplus lines agents in Texas must pay a premium tax on surplus lines policies and report placements through the Surplus Lines Stamping Office of Texas.
- The Texas Automobile Insurance Plan Association (TAIPA) is the residual market mechanism that provides auto liability coverage to drivers unable to obtain insurance in the voluntary market.
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Chapter 9: Exam Strategy & Tips
- The Texas P&C exam has 150 multiple-choice questions with a 2-hour-30-minute time limit — you need 70% (105 correct) to pass, and there is no penalty for guessing.
- Budget approximately 1 minute per question and set pace checkpoints: question 50 by minute 50, question 100 by minute 100, with 10-15 minutes reserved for review.
- Always read the entire question before looking at answer choices, and identify what is being asked: a definition, an application, a comparison, or an exception.
- Watch for absolute qualifiers like "always" and "never" — these answer choices are usually wrong; moderate words like "generally" and "may" are usually correct.
- When stuck, eliminate the two obviously wrong answers first to create a 50/50 choice — if two remaining answers are opposites, one of them is likely correct.
- Focus your heaviest study on the three highest-weighted areas: Casualty Policies (~23 questions), Property Policies (~22 questions), and Texas Statutes (~30 questions combined) — these cover half the exam.
- For "All of the following EXCEPT" questions, check each option individually — the correct answer is the one that does NOT fit with the others.
- Never leave a question blank — there is no guessing penalty, so always select your best answer and flag difficult questions to revisit with remaining time.
- If you do not pass, you can retake after 24 hours for $55 per attempt — use your score report to identify and focus on your weakest content areas.
- Arrive 30 minutes early with two forms of valid ID, avoid cramming the night before, and do a light review of Texas statutes since they make up roughly 20% of the exam.