Texas Property and Casualty License Practice Exam

What is the definition of representation in insurance?

1. Information believed to be true

2. Information explicitly stated in a contract

3. Guaranteed outcomes of a policy

4. Obligations and rights of parties

The correct answer is: Information believed to be true

The definition of representation in insurance refers to information that an applicant believes to be true, which is provided to the insurer when applying for coverage. This information is important because it forms the basis upon which the insurance contract is established. Insurers rely on representations made during the application process to assess the risk involved and determine the appropriate premiums or whether to offer coverage at all. While the other responses touch on relevant concepts in the insurance world, they do not specifically encapsulate the meaning of representation. For instance, explicitly stated information in a contract pertains to warranties or conditions but does not convey the same idea as representation, which relies on the applicant's belief and knowledge at the time of application. Similarly, guaranteed outcomes describe the promises or benefits defined in the policy, and obligations and rights refer to the contractual elements of the relationship between the insurer and the insured, not to the information provided during the application process. Hence, the correct understanding of representation is essential for comprehending how insurance contracts are formed and the responsibilities of the parties involved.