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Texas PSI ALL LINES ADJUSTER PRACTICE EXAM QUESTIONS
AND CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES 2025
1. Which of the following is NOT considered an insurable risk? A. Pure risk B. Speculative risk C. Accidental loss D. Financially measurable loss Answer: B Rationale: Speculative risks involve the possibility of gain or loss (like gambling) and are not insurable. Insurance only covers pure risks. 2. Which of these best describes subrogation? A. Transferring the risk to the insurer B. Recovering damages from a third party C. Sharing risk among policyholders D. Using coinsurance to split losses Answer: B Rationale: Subrogation allows the insurer to recover costs from a third party that caused the loss, after paying the insured.
3. Under Texas law, how many days does an adjuster have to acknowledge receipt of a claim after notice? A. 10 calendar days B. 15 calendar days C. 30 calendar days D. 45 calendar days Answer: B Rationale: In Texas, an insurer must acknowledge a claim within 15 calendar days of receiving notice of loss. 4. An adjuster must complete how many continuing education hours every renewal period in Texas? A. 12 hours B. 24 hours C. 30 hours D. 40 hours Answer: B Rationale: Texas requires licensed adjusters to complete 24 CE hours every two years, including 2 hours of ethics. 5. An insured’s home burns down due to arson committed by the insured. The insurance company will likely: A. Pay the claim in full B. Pay the claim partially
8. What is the purpose of a reservation of rights letter? A. Deny a claim outright B. Protect the insured from fraud C. Advise the insured that coverage may not apply D. Extend the policy’s coverage Answer: C Rationale: A reservation of rights letter notifies the insured that the insurer is investigating but coverage may be denied. 9. Which of these best defines an actual cash value (ACV) policy? A. Replacement cost plus depreciation B. Replacement cost minus depreciation C. Market value only D. Agreed value only Answer: B Rationale: ACV = Replacement cost minus depreciation for age, wear, and tear. 10. Which of the following adjuster actions would be considered an unfair claims practice in Texas? A. Prompt payment of claims B. Properly denying fraudulent claims C. Failing to affirm or deny coverage within a reasonable time D. Paying claims within policy limits
Answer: C Rationale: Failing to promptly affirm or deny coverage is an unfair claims settlement practice under Texas law.
11. Which coverage pays for injuries to a third party when the insured is legally liable? A. Collision coverage B. Property coverage C. Liability coverage D. Medical payments coverage Answer: C Rationale: Liability coverage pays when the insured is legally liable for bodily injury or property damage to others. 12. Which part of an insurance policy sets forth the promise to indemnify the insured? A. Conditions B. Exclusions C. Declarations D. Insuring agreement Answer: D Rationale: The insuring agreement outlines the insurer’s promise to pay covered losses.
16. Under a dwelling policy, which perils are covered by DP-1 Basic Form? A. Fire, lightning, and internal explosion B. Theft and vandalism C. Flood and earthquake D. All risks Answer: A Rationale: DP-1 covers fire, lightning, and internal explosion; others may be added by endorsement. 17. Which is the definition of “proximate cause”? A. Indirect cause of loss B. Closest geographic location to loss C. Primary cause in an unbroken chain of events D. Immediate cost of loss Answer: C Rationale: Proximate cause is the dominant cause leading directly to loss without interruption. 18. Which is the penalty for adjusting claims without a license in Texas? A. None B. Cease and desist only C. Criminal and civil penalties D. Refund premium
Answer: C Rationale: Unlicensed adjusting can result in fines and potential criminal charges in Texas.
19. Which clause in a policy requires insureds to protect property after a loss? A. Liberalization clause B. Subrogation clause C. Duties after loss D. Other insurance clause Answer: C Rationale: The “Duties After Loss” condition requires insureds to mitigate further damage. 20. A flood claim is submitted under a standard homeowner’s policy. The adjuster should: A. Pay the claim B. Deny the claim C. Pay partial damages D. Subrogate the claim Answer: B Rationale: Standard homeowner’s policies do not cover flood; separate flood insurance is needed.
24. In Texas, how long must adjusters keep records of continuing education? A. 1 year B. 2 years C. 4 years D. 5 years Answer: D Rationale: Texas requires adjusters to maintain CE records for 5 years. 25. What is salvage? A. Recovering value from damaged property B. Sharing a risk with another insurer C. A type of reinsurance D. Policy cancellation Answer: A Rationale: Salvage is the insurer’s right to recover remaining value from damaged property. 26. When is an adjuster’s license renewal fee due in Texas? A. 15 days before expiration B. 30 days before expiration C. On the expiration date D. 60 days before expiration Answer: B
Rationale: The renewal fee must be submitted before the expiration date, typically 30 days prior.
27. A commercial policy that covers loss of income due to suspension of operations provides: A. Extra expense coverage B. General liability C. Business income coverage D. Inland marine coverage Answer: C Rationale: Business income insurance replaces lost net income when operations are interrupted. 28. What type of adjuster can represent the policyholder’s interests? A. Staff adjuster B. Independent adjuster C. Public adjuster D. Catastrophe adjuster Answer: C Rationale: Public adjusters work on behalf of policyholders, not insurers. 29. Which is a direct loss? A. Loss of rental income B. Business interruption
C. Both parties exchange equal value D. Both parties must misrepresent Answer: B Rationale: Only the insurer must perform if a covered loss occurs.
33. An insured intentionally conceals material facts. This is: A. Misrepresentation B. Breach of warranty C. Fraud D. Estoppel Answer: C Rationale: Intentionally hiding relevant information is fraud. 34. Under Texas law, when must payment be made after the claim is accepted? A. Immediately B. Within 5 days C. Within 10 days D. Within 15 days Answer: B Rationale: Insurers must pay accepted claims within 5 business days of agreeing to pay. 35. Which policy section lists the insured’s name, location, and limits? A. Exclusions
B. Conditions C. Declarations D. Insuring agreement Answer: C Rationale: The declarations page identifies key information about the policy and insured.
36. A Texas adjuster license must be renewed: A. Every year B. Every 2 years C. Every 3 years D. Every 4 years Answer: B Rationale: Texas adjuster licenses renew every 2 years. 37. If two policies apply to the same loss, the provision that determines how they share the loss is: A. Subrogation clause B. Other insurance clause C. Appraisal clause D. Duties after loss Answer: B Rationale: The “Other Insurance” clause prevents double recovery by coordinating coverage.
41. Which term means sharing a loss among all policyholders? A. Indemnity B. Law of large numbers C. Insurable interest D. Coinsurance Answer: B Rationale: The law of large numbers helps insurers predict losses and spread risk. 42. Which peril is typically excluded in all property policies? A. Fire B. Lightning C. Flood D. Windstorm Answer: C Rationale: Flood is always excluded under standard property policies; separate flood insurance is needed. 43. What does estoppel prevent an insurer from doing? A. Filing a claim B. Canceling a policy C. Denying a fact it previously accepted D. Paying subrogation Answer: C
Rationale: Estoppel prevents denying a fact if the insurer’s previous actions led the insured to believe otherwise.
44. What must be present for insurable interest? A. No risk of loss B. Financial interest in the property C. Speculative risk D. Intentional loss Answer: B Rationale: The insured must have a financial stake in the property at the time of loss. 45. Which is an example of an indirect loss? A. Wind damage to a roof B. Fire damage to a house C. Lost rental income after a fire D. Tree falling on a car Answer: C Rationale: Lost income due to a covered event is an indirect loss. 46. An adjuster must be fair and impartial and act in: A. Bad faith B. Good faith C. Strict liability
C. A policy endorsement D. Legal defense cost Answer: B Rationale: A material misrepresentation is false information that affects an insurer’s decision to issue coverage.
50. Which loss settlement method pays replacement cost minus depreciation? A. Replacement cost B. Actual cash value C. Agreed value D. Stated amount Answer: B Rationale: Actual cash value pays replacement cost less depreciation for wear and age. 51. Which principle states that insurance should not allow an insured to profit from a loss? A. Insurable interest B. Subrogation C. Indemnity D. Assignment Answer: C Rationale: The principle of indemnity restores the insured to their pre-loss condition without financial gain.
52. What is the purpose of coinsurance in property insurance? A. Limit subrogation rights B. Require the insured to carry adequate insurance C. Increase the deductible D. Eliminate fraud Answer: B Rationale: Coinsurance encourages policyholders to insure property to its value to receive full payment for partial losses. 53. An insured intentionally sets fire to their own business to collect insurance money. This is: A. Proximate cause B. Misrepresentation C. Moral hazard D. Fraud Answer: D Rationale: Intentionally causing loss to collect insurance is fraud. 54. A tornado damages both the roof and interior of a home. Which type of loss is the interior damage? A. Direct loss B. Indirect loss C. Consequential loss
