Texas Property and Casualty License Practice Exam

Which of the following describes one type of termination of a policy?

1. Amendment to the policy terms

2. Cancellation by either the insured or insurer before the policy period ends

3. Extension of the policy coverage

4. Adjustment of the premium based on claims experience

The correct answer is: Cancellation by either the insured or insurer before the policy period ends

Termination of a policy can occur when either the insured or the insurer decides to cancel the policy before the designated policy period has concluded. This cancellation can happen for various reasons, such as non-payment of premiums, changes in risk, or mutual consent between the parties involved. When this occurs, the coverage provided by the policy ends, which is a significant departure from simply amending terms, extending coverage, or adjusting premiums. Each of those actions might alter the nature of the policy or its financial aspects, but they do not lead to the policy being terminated outright. In this sense, cancellation represents a decisive action that effectively concludes the contractual relationship defined by the insurance policy. It is essential for individuals taking the Texas Property and Casualty License examination to understand this concept clearly, as it relates directly to how policies function within the realm of insurance.