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Texas Marketing Practices, Agent Duties and the Guaranty Association: Practice Questions

20 free practice questions with explanations. Pick an answer for each, then check your score.

Exam weight: Part of the 14 questions on rules common to life and health on the Texas state-law portion of the Life and Health agent exam. Updated 2026-11-04.

Quick study guide

Expect deadlines, scenarios and "which practice is this?" questions on the Texas Insurance Code (TIC) rules for claims, sales conduct, commissions and the guaranty association.

Prompt payment of claims (TIC 542.055–.060)

Step	Deadline
Acknowledge, start investigating, request forms	15th day after notice of claim
Accept or reject in writing (reasons if rejected)	15th business day after receiving all items for proof of loss (30th day if arson is suspected)
More time needed	Give reasons within that period; decide by the 45th day
Pay after accepting	5th business day
Late payment	Over 60 days (unless another statute sets a period): 18% a year interest plus attorney's fees

Unfair claim settlement practices (TIC 542.003, 28 TAC 21.203) include misrepresenting policy provisions and lowballing so the policyholder has to sue.

Unfair and deceptive practices

Misrepresentation (TIC 541.051, 541.061; 28 TAC 21.4) includes leaving out a material fact that makes what was said misleading, and misrepresenting to get someone to drop an existing policy. Advertising rules (28 TAC 21.111, 21.114) ban incomplete comparisons and require disclosures, such as an equally prominent note that a "no medical exam" policy may still depend on application answers. Defamation (541.053) is a false or maliciously critical statement about an insurer's finances. Boycott, coercion or intimidation (541.054) is concerted action that unreasonably restrains the insurance business.

Rebating is any inducement not stated in the policy, such as paying part of the premium. Since 1 September 2025 these rules sit in TIC Chapter 1702 (old 541.056 was repealed); items worth $25 or less, if promotional, educational or a traditional courtesy are allowed. Unfair discrimination (544.002; 1702.103, 1702.153) is treating people of the same class and life expectancy differently. Race, color, religion and national origin may never be used; age, gender, marital status, location and disability only on sound actuarial grounds.

Fraud (TIC Chapter 701): report a suspected fraudulent insurance act in writing to TDI's fraud unit within 30 days. Commingling as cited (TIC 1104.024) is a permission: a trustee named as beneficiary may mix policy proceeds with other trust assets.

Commissions

Only Texas-licensed agents may be paid for agent work, though a former agent can still receive renewals (TIC 4005.053). A temporary licensee earns nothing on sales to himself, relatives, or a recent employer or employee (4001.157).

Guaranty association (TIC Chapter 463)

It protects residents when a member insurer is impaired or insolvent, up to limits per life such as $300,000 in death benefits, $100,000 in cash value, $250,000 in annuity value and $500,000 for health benefit plans (463.204). It does not step in when the insurer's home state already protects the resident (463.205), and no one selling insurance may use it as a sales point (463.451).

Practice questions

Under the Texas prompt-payment law, after an insurer receives written notice of a life insurance claim, by when must it acknowledge the claim, begin investigating and request the forms it needs from the claimant?
1. A.Not later than the 30th day after it receives the notice
2. B.Not later than the 60th day after it receives the notice
3. C.Not later than the 5th business day after it receives the notice
4. D.Not later than the 15th day after it receives the notice
Show answer
Answer: D. TIC 542.055 gives an insurer until the 15th day after receiving notice of a claim to acknowledge it, start the investigation and request the items it reasonably needs (eligible surplus lines insurers get 30 business days). Five business days is the deadline for paying after the insurer accepts the claim, and 60 days is the delay that triggers prompt-payment damages.
Source: Texas content outline I.D.1.a; Texas Insurance Code §542.055
A Texas insurer has received every item, statement and form it needs to secure final proof of loss on a health claim. Arson is not involved, and the insurer does not need more time. By when must it tell the claimant in writing whether the claim is accepted or rejected?
1. A.Within 15 calendar days
2. B.Within 45 days
3. C.Within 30 days
4. D.Within 15 business days
Show answer
Answer: D. TIC 542.056(a) requires written notice of acceptance or rejection by the 15th business day after the insurer receives all the items it needs for final proof of loss, and a rejection must give reasons. Thirty days applies only when the insurer reasonably suspects arson. The 45-day limit applies only after the insurer has told the claimant why it needs more time.
Source: Texas content outline I.D.1.a; Texas Insurance Code §542.056
A Texas insurer accepts a claim but, after receiving everything it asked for, delays payment for more than 60 days. No other statute sets a different period, and the claim is valid. Under the prompt-payment law, what does the insurer owe besides the claim amount?
1. A.A flat $500 penalty paid to the state treasury
2. B.Nothing extra unless the claimant proves the delay was intentional
3. C.Interest at 18% a year as damages, plus reasonable attorney's fees
4. D.Interest at 10% a year, with no attorney's fees
Show answer
Answer: C. Under TIC 542.058(a), a delay of more than 60 days (when no other statute sets a period) makes the insurer liable under 542.060. For a claim like this, that means 18% a year interest on the claim amount as damages plus reasonable attorney's fees. Property claims governed by Chapter 542A use a different interest rate. The statute does not require the claimant to prove the delay was intentional, and the damages go to the claimant, not the state.
Source: Texas content outline I.D.1.a; Texas Insurance Code §542.058; Texas Insurance Code §542.060
Which of the following is an unfair claim settlement practice under Texas law?
1. A.Asking for tax returns before settling a claim for lost income
2. B.Lowballing settlements so policyholders must sue to recover what they are owed
3. C.Asking for more information during an investigation when it turns out to be necessary
4. D.Rejecting a claim in writing and stating the reasons for the rejection
Show answer
Answer: B. TIC 542.003(b)(5) and 28 TAC 21.203(5) list forcing policyholders to sue by offering substantially less than they later recover. Additional information requests are expressly allowed when needed (542.055(b)), a written rejection must state its reasons (542.056(c)), and tax returns may be required when the claim involves a loss of profits or income (542.004).
Source: Texas content outline I.D.1.a; Texas Insurance Code §542.003; 28 TAC §21.203
An agent tells a prospect that a life policy pays $250,000 at death but does not mention that, during the first two years, the policy pays only a return of premium for deaths not caused by accident. Under Texas rules this is best described as:
1. A.Misrepresentation, because leaving out a material fact made the statement misleading
2. B.Rebating, because it gives the prospect a benefit not in the policy
3. C.Defamation, because it damages the insurer's reputation
4. D.Permitted, because every statement the agent actually made was true
Show answer
Answer: A. Texas defines misrepresentation to include omitting a material fact needed to keep the statements made from being misleading (28 TAC 21.4(2); TIC 541.061(2)). So a technically true statement can still be a violation. Defamation is a false or malicious statement about an insurer's financial condition. Rebating is giving an inducement not specified in the policy.
Source: Texas content outline I.D.1.c; 28 TAC §21.4; Texas Insurance Code §541.061
An agent tells a client, falsely, that the client's current insurer is cutting the cash value on the client's existing policy, so that the client will surrender it and buy a new one. Under TIC 541.051 this is:
1. A.Boycott, because it draws business away from another insurer
2. B.A violation only if the agent earns a commission on the new policy
3. C.Not a violation, as long as the new policy has a higher face amount
4. D.A misrepresentation made to induce a policyholder to surrender a policy
Show answer
Answer: D. TIC 541.051(5) makes it an unfair or deceptive act to misrepresent anything to a policyholder to induce, or that tends to induce, the policyholder to let a policy lapse or to forfeit or surrender it. This is the conduct often called twisting. The violation does not depend on the size of the new policy or on whether a commission is paid. Boycott under 541.054 requires concerted action that restrains the insurance business.
Source: Texas content outline I.D.1.c; Texas Insurance Code §541.051
A Texas life insurance advertisement says "No medical exam required," but issuance of the advertised policy is not guaranteed. Under 28 TAC 21.114, what must the ad include?
1. A.A footnote in any type size, anywhere in the ad, saying underwriting applies
2. B.A statement that the policy is guaranteed issue for applicants of all ages
3. C.A description of the state guaranty association and its coverage limits
4. D.An equally prominent nearby statement that issue may depend on application answers
Show answer
Answer: D. 28 TAC 21.114(2)(C)(ii) requires an ad that uses "non-medical" or "no medical examination required" for a policy that is not guaranteed issue to carry an equally prominent disclosure, in close conjunction with that language, that issuance may depend on the application answers. A small footnote does not meet the "equally prominent" test. Claiming guaranteed issue would be false. Using the guaranty association to sell is prohibited by TIC 463.451.
Source: Texas content outline I.D.1.b; 28 TAC §21.114
To win business, an agent tells prospects that a competing insurer "is about to go bankrupt," knowing this is false. Which Texas unfair practice is this?
1. A.Boycott, coercion or intimidation
2. B.Unfair discrimination
3. C.Rebating
4. D.Defamation of an insurer
Show answer
Answer: D. TIC 541.053 prohibits making or circulating a statement that is false, maliciously critical of, or derogatory to an insurer's financial condition and is calculated to injure a person in the insurance business. It applies to oral and written statements. Boycott requires concerted action, rebating involves inducements not in the policy, and unfair discrimination concerns how insureds of the same class are treated.
Source: Texas content outline I.D.1.d; Texas Insurance Code §541.053
Several agencies agree among themselves to place no business with a particular insurer until it raises their commissions, aiming to force it out of their market. Under the Texas Insurance Code this is:
1. A.Misrepresentation of a policy
2. B.Boycott, coercion or intimidation
3. C.Commingling of funds
4. D.Defamation of an insurer
Show answer
Answer: B. TIC 541.054 makes it an unfair practice to commit, through concerted action, or to agree to commit, an act of boycott, coercion or intimidation that results or tends to result in unreasonable restraint of, or a monopoly in, the business of insurance. No false statement is involved, so it is not defamation or misrepresentation. Commingling concerns mixing funds.
Source: Texas content outline I.D.1.g; Texas Insurance Code §541.054
To close a sale, a Texas agent offers to pay the client's first two monthly premiums on a new life policy out of the agent's own commission. Under current Texas law this is:
1. A.Allowed, because the money comes from the agent rather than the insurer
2. B.A prohibited rebate, because it is an inducement not specified in the policy
3. C.Allowed for life policies, though it would be prohibited for health policies
4. D.Allowed, as long as the agent discloses the offer to the client in writing
Show answer
Answer: B. TIC 1702.102 bars an insurer or agent from giving a rebate of premium, or any valuable consideration or inducement not specified in the policy, to induce a life insurance or annuity purchase. Section 1702.152 applies the same rule to accident and health coverage. Paying the premium from the agent's own pocket is still a rebate, and written disclosure does not cure it. These Chapter 1702 rules took effect 1 September 2025, replacing the repealed Section 541.056.
Source: Texas content outline I.D.1.e; Texas Insurance Code §1702.102; Texas Legislature: H.B. 2221 (2025), enrolled text
Which of these may a Texas agent give a prospect when offering a life or health policy without it counting as a prohibited rebate or inducement?
1. A.A promotional or educational item, or traditional courtesy, valued at $25 or less
2. B.A free term life policy as a bonus for buying an annuity
3. C.A refund of part of the first premium once the policy is issued
4. D.Shares of stock in the agent's insurance agency
Show answer
Answer: A. TIC 1702.104(5) (life and annuities) and 1702.154(3) (accident and health) exempt a promotional advertising item, educational item or traditional courtesy worth $25 or less. TIC 4005.053(d) sets the same $25 limit for agents. A premium refund is a rebate, and giving stock or securities as an inducement is specifically prohibited. Offering insurance as an inducement to buy another policy is barred by 1702.052.
Source: Texas content outline I.D.1.e; Texas Insurance Code §1702.104; Texas Insurance Code §1702.154
Under TIC 544.002 and 544.003, which characteristic may an insurer not use to refuse coverage or charge a different rate, even if actuarial data appear to support it?
1. A.Disability
2. B.Religion
3. C.Age
4. D.Geographic location
Show answer
Answer: B. TIC 544.002(a) bars refusing, limiting or pricing coverage differently because of race, color, religion or national origin; age, gender, marital status or geographic location; or disability. The exception in 544.003(b) for decisions based on sound underwriting or actuarial principles applies only to the age, gender, marital status, location and disability groups. Religion, race, color and national origin can never be used.
Source: Texas content outline I.D.1.i; Texas Insurance Code §544.002; Texas Insurance Code §544.003
Two applicants for the same whole life policy are both 40-year-old nonsmokers in the same underwriting class with equal life expectancy. The insurer gives one a lower premium rate because he is a friend of the agent. Under Texas law this is:
1. A.Misrepresentation, because the policy terms are being misstated
2. B.Allowed, because each insurer is free to set its own rates
3. C.Unfair discrimination between individuals of the same class and equal life expectancy
4. D.A violation only if the agent personally pays the difference in premium
Show answer
Answer: C. TIC 1702.103 prohibits an insurer from making or permitting any distinction or unfair discrimination between individuals of the same class and equal life expectancy in the rate charged, the dividends or benefits payable, or any other policy terms. Section 1702.153 says the same for accident and health coverage. Friendship is not an underwriting class. No false statement is involved, so it is not misrepresentation.
Source: Texas content outline I.D.1.i; Texas Insurance Code §1702.103
A Texas agent reasonably suspects that a client has filed a fraudulent claim. Under TIC Chapter 701, what is required?
1. A.A report to local police within 10 days, with no report to TDI
2. B.A report to the insurer only, within 90 days of the claim
3. C.A written report to the TDI insurance fraud unit within 30 days of forming the suspicion
4. D.Nothing until the agent has proof that fraud was committed
Show answer
Answer: C. TIC 701.051(a) requires a report in writing to the Texas Department of Insurance's insurance fraud unit no later than the 30th day after the person determines or reasonably suspects that a fraudulent insurance act has been or is about to be committed. The person may also report to another law enforcement or prosecuting agency. Suspicion is enough, so proof is not needed. Section 701.052 protects people who report in good faith from civil liability.
Source: Texas content outline I.D.1.f; Texas Insurance Code §701.051; Texas Insurance Code §701.052
An insured named the trustee of his trust as beneficiary of his life policy. After his death the trustee receives the proceeds. Under TIC 1104.024, the trustee:
1. A.May commingle the proceeds with other assets properly coming into the trust
2. B.Must deposit the proceeds with the Texas Department of Insurance
3. C.Must first pay the proceeds into the insured's probate estate
4. D.Must hold the proceeds in a separate account, apart from all other trust assets
Show answer
Answer: A. TIC 1104.024 expressly allows life insurance proceeds received by a trustee named as beneficiary to be commingled with any other assets properly coming into the trust. Under 1104.021 the proceeds are paid to the trustee, who handles them as the trust agreement provides, not through the probate estate. Section 1104.023 adds that the proceeds are not subject to the insured's debts any more than if they were paid to another beneficiary.
Source: Texas content outline I.D.1.h; Texas Insurance Code §1104.024
A Texas agent wants to give half of the commission on a sale to an unlicensed friend who helped solicit and negotiate the policy. Under TIC 4005.053:
1. A.The split is allowed if the friend becomes licensed within six months
2. B.The split is allowed if the friend is a close relative of the agent
3. C.It is prohibited: only Texas-licensed agents may be paid for agent services
4. D.The split is allowed if the insurer approves it in advance in writing
Show answer
Answer: C. TIC 4005.053(a) bars insurers and agents from paying, directly or indirectly, a commission or other valuable consideration for agent services in Texas to anyone who does not hold a Texas agent license. Section 4005.053(c) also bars an agent from paying an unlicensed person a referral fee based on the customer's purchase. A family relationship or the insurer's approval does not change this. The one exception is that renewal or other deferred commissions can still be paid to a person who no longer holds a license (4005.053(b)).
Source: Texas content outline I.E.1; Texas Insurance Code §4005.053
A person holding a Texas temporary agent license sells a health policy to his brother. Under TIC 4001.157:
1. A.A commission is allowed if the sponsoring insurer approves it in writing
2. B.No commission may be paid to, or accepted by, the temporary license holder on that sale
3. C.The commission is held until the person's permanent license is issued
4. D.A commission may be paid, but it must be cut in half
Show answer
Answer: B. TIC 4001.157 bars a temporary license holder from receiving, and an agent, insurer or HMO from knowingly paying, a commission on coverage for the temporary license holder himself, a relative by blood or marriage, or anyone who was his employer or employee during the past six months. It also bars commission on sales to people with a family, employment or business relationship with him. The statute provides no reduced-commission, deferral or approval exception.
Source: Texas content outline I.E.1; Texas Insurance Code §4001.157
What is the most the Texas Life and Health Insurance Guaranty Association covers in life insurance death benefits on a single life?
1. A.$250,000
2. B.$300,000
3. C.$500,000
4. D.$100,000
Show answer
Answer: B. TIC 463.204 excludes death benefits above $300,000 under one or more life policies on a single life. The other figures are different limits: $100,000 for net cash surrender or withdrawal value of life policies, $250,000 for the present value of annuities, and $500,000 for health benefit plans.
Source: Texas content outline I.F; Texas Insurance Code §463.204
A Texas agent's sales flyer says, "Buy with confidence: the state guaranty association backs every policy we sell." Under the Texas Insurance Code this is:
1. A.Allowed, as long as the flyer also states the coverage limits accurately
2. B.Prohibited: no one selling insurance may use the association to make a sale
3. C.Allowed, as long as the insurer is a member of the association
4. D.Required wording for all life and health advertising in Texas
Show answer
Answer: B. TIC 463.451 bars any advertisement or statement that uses the guaranty association's existence to sell, solicit or induce the purchase of covered insurance, and makes such use an unfair practice under Chapter 541. Listing accurate limits or noting membership does not make it lawful. The association's summary document (463.114) must itself warn that insurers and agents may not use the association to sell, and that buyers should not rely on it when choosing an insurer.
Source: Texas content outline I.F; Texas Insurance Code §463.451; Texas Insurance Code §463.114
A Texas resident owns a policy from an insurer domiciled in another state. The insurer becomes insolvent, and the law of its home state provides guaranty protection to the Texas resident. Under TIC 463.205, the Texas guaranty association:
1. A.Pays benefits in addition to those paid by the other state's association
2. B.Covers only the cash value, leaving the death benefit to the other state
3. C.Covers the policy first and then seeks reimbursement from the other state
4. D.Does not provide coverage, because protection is provided by the other jurisdiction
Show answer
Answer: D. TIC 463.205 says the Texas association does not cover a resident for an impaired or insolvent insurer domiciled in another jurisdiction if that jurisdiction's law provides guaranty protection to the resident. Section 463.201(c) adds that the chapter is read so that only one association covers a person, which rules out double payment or split coverage.
Source: Texas content outline I.F; Texas Insurance Code §463.205; Texas Insurance Code §463.201

Where these questions come from: Texas content outline (Pearson VUE #124401, effective 1 Sep 2026), Life and Health agent state-specific content, section I.D–F: Marketing practices, agent duties and the Texas Life and Health Guaranty Association. See how we write questions.