20 Texas State Law (TDI) Practice Questions & Answers
Every Texas State Law (TDI) practice question from the Insurance License Practice Test, with the correct answer and a short explanation.
Start practice test →1. Under the Texas Insurance Code, how does the Commissioner of Insurance obtain the office?
- A.Elected by a majority vote of insurers holding a certificate of authority in Texas
- B.Appointed by the Texas Supreme Court from a list submitted by the insurance industry
- C.Elected by the voters of Texas in a statewide general election
- D.Appointed by the Governor with the advice and consent of the Senate✓ Answer
The Commissioner is the chief executive of the Texas Department of Insurance and is an appointed, not elected, officer: the Governor appoints the Commissioner subject to Senate confirmation, which keeps the regulator accountable to the elected executive and legislature rather than to the industry or to a separate electorate.
Source: Tex. Ins. Code §31.021 (Commissioner appointed by the Governor with advice and consent of the Senate)Report a problem with this question
2. An insurer continues an unlawful practice while a Texas Department of Insurance proceeding is pending, and the Commissioner determines the conduct is causing immediate and irreparable harm to the public. Which remedy is designed for that situation?
- A.A private civil suit that the Commissioner must file before any order can issue
- B.Referral to the Office of Public Insurance Counsel for a binding ruling
- C.Automatic revocation of the certificate of authority without any hearing right
- D.An emergency cease and desist order, effective immediately and subject to a prompt post-order hearing✓ Answer
Cease and desist authority lets the Commissioner stop ongoing conduct rather than only punish it after the fact; when the harm is immediate and irreparable the order can take effect at once, and due process is preserved by giving the respondent a hearing after the order issues rather than before.
Source: Tex. Ins. Code §§83.051-83.054 (emergency cease and desist orders)Report a problem with this question
3. What is the statutory role of the Texas Office of Public Insurance Counsel (OPIC)?
- A.To pay claims of policyholders of insolvent insurers
- B.To license and appoint insurance agents on behalf of the Department
- C.To represent the interests of insurance consumers as a class in rate, rule, and form proceedings✓ Answer
- D.To adjudicate individual policyholder complaints and order insurers to pay disputed claims
OPIC is a separate state agency from TDI whose sole function is advocacy: it appears in Department and court proceedings to argue the consumer side of rate and form filings, so consumers have an organized voice against insurer counsel. It does not license agents, pay claims, or decide individual disputes.
Source: Tex. Ins. Code Ch. 501 (Office of Public Insurance Counsel; representation of insurance consumers)Report a problem with this question
4. Which activity requires a Texas general lines property and casualty AGENT license rather than an adjuster license?
- A.Estimating the amount of damage to determine what the insurer owes
- B.Investigating the facts of a reported loss for the insurer
- C.Negotiating the settlement amount of a first-party claim for the insurer
- D.Soliciting an applicant and binding coverage on behalf of an insurer✓ Answer
The license taxonomy follows the function: an agent license authorizes selling, soliciting, and binding insurance, while an adjuster license authorizes investigating, evaluating, and negotiating losses after a claim occurs. Only the first option involves placing coverage.
Source: Tex. Ins. Code §§4101.001-4101.005 (adjuster defined) and Ch. 4051 (property and casualty agent licensing)Report a problem with this question
5. Under the Texas Insurance Code, how long is a temporary agent license valid?
- A.30 days
- B.90 days
- C.180 days✓ Answer
- D.1 year
A temporary license exists to keep an existing book of business serviced when an agent dies, becomes disabled, or enters military service, so it runs long enough to arrange a permanent solution but cannot be used as a substitute for qualifying: the statutory period is 180 days, and no examination is required for it. Many older study guides still cite the pre-2021 figure of 90 days.
Source: Tex. Ins. Code §4001.155 (temporary license; 180 days, as amended by HB 2819 eff. 9/1/2021)Report a problem with this question
6. An individual Texas license holder is convicted of a felony and separately moves to a new home address. What does the Texas Insurance Code require regarding notice to TDI?
- A.The license holder must report both the conviction and the address change to the Department monthly✓ Answer
- B.Only the address change must be reported; criminal matters are reported by the court
- C.Both must be reported, but only at the time the license is renewed
- D.Neither event must be reported unless TDI requests the information in writing
Texas imposes a continuing duty to keep the Department's record current so that regulators and consumers can always locate and evaluate a licensee. For an individual license holder the statute sets a monthly reporting cycle for address changes, felony convictions, and administrative actions by another regulator; the 30-day deadline that candidates often recall applies to a corporation or partnership reporting an agent's felony conviction.
Source: Tex. Ins. Code §4001.252 (notification to the Department; monthly for individuals, 30 days for entities reporting an agent felony)Report a problem with this question
7. What is the legal effect of an insurer's appointment of a licensed Texas agent?
- A.It authorizes the agent to act for that particular insurer, and the insurer must notify TDI when the appointment terminates✓ Answer
- B.It makes the agent an employee of the insurer for all purposes under Texas law
- C.It permanently binds the insurer, which may not terminate the appointment without Commissioner approval
- D.It replaces the agent's license, so an appointed agent need not hold a separate license
Licensing and appointment are two distinct steps: the license establishes that the person is qualified to transact insurance at all, while the appointment establishes the agency relationship with a specific insurer. Because the appointment is the insurer's grant of authority, the insurer is the party required to notify the Department when it ends.
Source: Tex. Ins. Code §§4001.201-4001.206 (appointment of agent; notice of termination)Report a problem with this question
8. Texas continuing education requirements for resident agents include which of the following structural features?
- A.Continuing education is waived for any agent who holds more than one license
- B.A portion of the required hours must be in ethics or consumer protection✓ Answer
- C.Hours are earned once and satisfy the requirement for the life of the license
- D.All required hours must be completed through self-study only
Texas ties license renewal to a recurring CE cycle precisely so that competence is maintained over time, and it carves out a mandatory ethics/consumer protection component because technical knowledge alone does not prevent the conduct violations the Code polices. CE is recurring, not one-time, and is not waived for multiple licenses.
Source: Tex. Ins. Code §§4004.051-4004.055 and TDI continuing education rules (mandatory ethics/consumer protection component)Report a problem with this question
9. An agent tells a client that her current life policy is financially unsound and uses incomplete comparisons to persuade her to surrender it and buy a new one. Under Texas law this conduct is best described as:
- A.Controlled business, because the agent generated the sale himself
- B.Twisting, a form of prohibited misrepresentation✓ Answer
- C.Rebating, because the client obtains a new contract
- D.Coercion, because the client felt pressured
Twisting is misrepresentation aimed specifically at inducing replacement of an existing policy; the harm is that the insured gives up accrued values, a set incontestability clock, and original-age rates based on false or incomplete information. Rebating involves sharing commission or giving inducements of value, coercion involves force applied to restrain trade, and controlled business concerns writing insurance on one's own interests.
Source: Tex. Ins. Code §§541.051-541.061 (misrepresentation and false advertising of insurance policies; twisting)Report a problem with this question
10. Which of the following would constitute unlawful rebating under Texas law?
- A.Offering to pay part of the applicant's first premium out of the agent's own commission to close the sale✓ Answer
- B.Providing the applicant a free policy summary and buyer's guide
- C.Giving the applicant a printed comparison of the insurer's financial ratings
- D.Explaining a premium discount that is stated in the insurer's filed rates and available to all qualifying applicants
Rebating is giving or offering anything of value not specified in the policy as an inducement to buy. Paying part of the premium from commission is the classic example because it makes the effective price differ from the filed rate, which both undercuts rate integrity and lets identical risks be charged different amounts. Disclosure documents and filed, uniformly available discounts are not inducements of value.
Source: Tex. Ins. Code §541.056 and §1806.104 (prohibited rebates and inducements)Report a problem with this question
11. An agent circulates a false statement that a competing insurer is on the verge of insolvency. Which prohibited practice has the agent committed?
- A.Commingling of funds
- B.Defamation of an insurer✓ Answer
- C.Filing a false financial statement
- D.Unfair discrimination
Defamation is making, publishing, or circulating a false statement that is maliciously critical of, or derogatory to, the financial condition of an insurer. It is prohibited because such statements can trigger surrenders and undermine solvency regardless of the underlying facts. Filing a false financial statement is a different offense involving the insurer's own reporting to the Department.
Source: Tex. Ins. Code §541.052 (defamation of an insurer as an unfair method of competition)Report a problem with this question
12. An agent collects premiums from clients and deposits them into his personal checking account, intending to forward them to the insurer later. Under Texas law, this is:
- A.Unlawful commingling; premiums are held in a fiduciary capacity and must be kept separate from the agent's own funds✓ Answer
- B.Permissible, because the agent owns the commission portion of every premium collected
- C.Permissible, provided the full amount reaches the insurer before the policy's grace period ends
- D.Unlawful only if the agent is a business entity rather than an individual
Premiums collected belong to the insurer (or, on a refund, to the insured), so the agent holds them as a fiduciary. Mixing them with personal funds is prohibited regardless of intent to remit, because once mingled the money is exposed to the agent's creditors and cannot be traced or audited.
Source: Tex. Ins. Code §4001.104 and §1104.024 (fiduciary handling of premiums; commingling prohibited)Report a problem with this question
13. May a Texas insurer or agent pay a commission to a person who is not licensed for the line of insurance sold?
- A.Yes, if the unlicensed person applies for a license within one year of the payment
- B.Yes, if the payment is disclosed in writing to the applicant
- C.No; commissions for selling or soliciting insurance may be paid only to properly licensed persons✓ Answer
- D.Yes, if the unlicensed person only made the referral and did not discuss coverage terms or amounts
The licensing scheme would be meaningless if unlicensed persons could be compensated for the same work, so Texas closes that gap by prohibiting commission payments to anyone not licensed for that line. Disclosure does not cure the violation, and a later license application does not retroactively authorize the payment.
Source: Tex. Ins. Code §4005.053-§4005.054 and §4001.157 (sharing commissions; payment only to licensed persons)Report a problem with this question
14. Under the Texas prompt payment of claims law, what is the insurer's FIRST required step after receiving notice of a claim?
- A.Notify the Commissioner that a claim has been filed
- B.Acknowledge receipt of the claim, begin any investigation, and request the items it needs from the claimant✓ Answer
- C.Pay the undisputed portion of the claim before conducting any investigation
- D.Obtain a signed release from the claimant before the file may be opened
Chapter 542 imposes a sequence with a deadline at each stage: acknowledge and commence investigation and request needed items first, then accept or reject the claim in writing within the statutory period after receiving all requested items, then pay within a short period after notifying the claimant of acceptance. The acknowledgment step starts the clock and tells the claimant exactly what is needed.
Source: Tex. Ins. Code §§542.055-542.058 (acknowledgment and commencement of investigation; acceptance or rejection; payment)Report a problem with this question
15. What is the consequence when a Texas insurer is liable for a claim but fails to comply with the prompt payment deadlines?
- A.The insurer's certificate of authority is automatically revoked
- B.It owes the claim amount plus statutory penalty interest and the claimant's reasonable attorney's fees✓ Answer
- C.The claimant loses the right to sue and must accept binding arbitration
- D.The policy is automatically rescinded and premiums are refunded
The statute makes delay economically unattractive rather than merely improper: an insurer that misses the deadlines owes the amount of the claim plus penalty interest running from the date payment was due, together with reasonable attorney's fees, so the policyholder is made whole for the cost of forcing payment.
Source: Tex. Ins. Code §542.060 (liability for damages: penalty interest plus reasonable attorney's fees)Report a problem with this question
16. Under the Texas replacement rules for life insurance and annuities, what right must the replacing insurer give the policy owner?
- A.The right to return the policy at any time during the first policy year for a pro rata refund
- B.The right to a refund limited to the policy's cash value at the time of return
- C.The right to return the new policy within 30 days of delivery for an unconditional refund of all premiums paid, including any fees or charges✓ Answer
- D.The right to cancel only if the insured dies during the contestable period
Replacement is regulated because the buyer gives up accrued values and a running incontestability and suicide period. Texas therefore requires an extended, unconditional right to return within 30 days of delivery with a full refund of everything paid, so a consumer who reconsiders is restored to the position held before the replacement.
Source: Tex. Ins. Code §§1114.052-1114.053 (replacement of life insurance and annuities; right to return within 30 days for unconditional refund)Report a problem with this question
17. Which statement about the Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association is correct?
- A.Agents may not use its existence as an inducement to purchase insurance✓ Answer
- B.It is funded by an annual appropriation from the Texas Legislature
- C.It guarantees that every policy will be paid in full without limit
- D.It protects policyholders of surplus lines insurers on the same terms as admitted insurers
The association is a safety net funded by assessments on member (admitted) insurers, and its protection is capped by statute rather than unlimited. Because advertising it would let a weak insurer market itself as risk-free, Texas expressly forbids using the association's existence in solicitation. Nonadmitted surplus lines insurers are not members and their policyholders are not covered.
Source: Tex. Ins. Code Ch. 463, incl. §463.205 (prohibition on use of the guaranty association in advertising or solicitation)Report a problem with this question
18. Which claims are paid by the Texas Property and Casualty Insurance Guaranty Association WITHOUT the statutory per-claim cap that applies to other covered claims?
- A.Statutory workers' compensation benefits✓ Answer
- B.Personal auto liability claims
- C.Homeowners dwelling losses
- D.Surplus lines property claims
Workers' compensation benefits are set by the Labor Code and are the injured worker's exclusive remedy against a subscribing employer, so capping them would leave the worker with no alternative recovery; the association therefore pays statutory comp benefits in full. Other covered claims are limited to the policy limits or the statutory cap, whichever is less, and surplus lines policies are excluded entirely because nonadmitted insurers are not members.
Source: Tex. Ins. Code Ch. 462 (Texas Property and Casualty Insurance Guaranty Act; workers' compensation benefits not subject to the covered-claim cap; surplus lines excluded)Report a problem with this question
19. A homeowner on the Texas coast cannot obtain windstorm coverage in the voluntary market. Which statement about the Texas Windstorm Insurance Association (TWIA) is correct?
- A.TWIA coverage is available only to applicants who have never filed a windstorm claim
- B.TWIA writes windstorm coverage anywhere in Texas for any applicant who requests it
- C.TWIA is the insurer of last resort for designated coastal areas, and eligibility requires a prior declination plus a certificate of compliance with building code requirements for structures built or altered after the applicable date✓ Answer
- D.TWIA is a state agency funded by legislative appropriation rather than by premiums and assessments
TWIA exists because catastrophe exposure makes coastal wind hard to place, so it functions as a residual market limited to the designated first-tier coastal counties (plus a defined part of Harris County). To keep it a true last resort and to control future losses, the applicant must first be declined by an authorized insurer and the structure must carry a windstorm certificate of compliance if it was built or altered on or after the applicable code date.
Source: Tex. Ins. Code Ch. 2210 (Texas Windstorm Insurance Association; catastrophe area eligibility, prior declination, WPI-8 certificate of compliance)Report a problem with this question
20. Under the Texas personal automobile policy rules, how may a named insured decline personal injury protection (PIP) or uninsured/underinsured motorist coverage?
- A.The coverage may be declined only with the written approval of the Commissioner
- B.The coverage may never be declined on a Texas personal auto policy
- C.The coverage must be included unless a named insured rejects it in writing✓ Answer
- D.The coverage is optional and is added only if the insured requests it orally or in writing
Texas uses an opt-out rather than an opt-in design: PIP and UM/UIM are automatically part of the policy so that consumers are not left uncovered by inattention, and the insured must take the affirmative step of a written rejection to remove them. Once rejected in writing, the insurer need not include the coverage on renewals unless the insured later requests it in writing.
Source: Tex. Ins. Code §1952.101 (uninsured/underinsured motorist) and §1952.152 (PIP; rejection must be in writing)Report a problem with this question
Practice questions cover general, uniform insurance concepts. State-specific laws and limits vary — study your state's official exam outline before testing. Insurance info (NAIC) →