Texas Property and Casualty License 2025 – 400 Free Practice Questions to Pass the Exam

The correct answer indicates that dishonesty by the insured has no effect on the mortgagee's ability to collect under the policy. In property insurance, the mortgagee (such as a bank or lender) typically has an interest in the property and is named as a loss payee on the insurance policy. This means that, regardless of the insured's potential dishonesty, the mortgagee's right to collect on the policy remains intact.

This principle stems from the idea that the insured's misrepresentations or dishonesty do not affect the separate rights and interests of the mortgagee. The mortgagee's protection is designed to ensure they can recover the outstanding loan amount in the event of a loss, independent of the insured's actions or credibility.

The insurance contract's provisions usually stipulate that even if the insured commits fraud, this often affects only the insured's claims and rights under the policy, leaving the mortgagee's claims valid. Thus, the mortgagee can still pursue the claim and receive payment for their interest regardless of any dishonesty exhibited by the insured individual.