Question 1

Disadvantages of automobile insurance plans include which of the following?
I.High premiums may cause many high-risk drivers to go uninsured.
II.Large underwriting profits have resulted in high-risk drivers subsidizing the cost of insurance for good drivers in the voluntary markets.

Accepted Answer

High premiums can indeed deter high-risk drivers from purchasing insurance, leading to a higher number of uninsured drivers. However, the statement about large underwriting profits resulting in high-risk drivers subsidizing good drivers is inaccurate. Typically, high-risk drivers pay higher premiums to cover their greater risk, not to subsidize lower-risk drivers.

Question 2

Which of the following statements about unsatisfied judgment funds is (are) true?
I.An accident victim must obtain a judgment against the motorist who caused an accident and must show the judgment cannot be collected.
II.The major disadvantage is that the negligent uninsured motorist is relieved of legal liability.

Accepted Answer

Statement I is true. In order to access unsatisfied judgment funds, the accident victim must first obtain a judgment against the at-fault party and demonstrate that the judgment cannot be collected. Statement II is false. The negligent uninsured motorist is not relieved of legal liability, but rather the unsatisfied judgment funds serve as a last-resort option for the victim to receive some compensation for their damages.

Question 3

The term used to describe plans in which automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market is the

Accepted Answer

The residual (shared) market is a term used to describe plans in which automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market. It is also referred to as the assigned risk market. The other options (foreign market, fair market, high-premium market) do not accurately describe this type of insurance market.

Question 4

Which of the following statements about joint underwriting associations for insuring high-risk drivers is (are) true?
I.Underwriting losses are proportionately shared by all auto insurers based on premiums written in the state.
II.Each company participating in a joint underwriting association sets it own rates.

Accepted Answer

Statement I is true as joint underwriting associations are designed to spread the risk of insuring high-risk drivers among all insurers in the state based on their market share or premiums written. Statement II is false as participating companies do not set their own rates but pay premiums based on their market share or premiums written in the state.

Question 5

Arguments often used against no-fault automobile insurance laws include all of the following EXCEPT

Accepted Answer

Option A is incorrect because it describes a scenario that supports the use of no-fault insurance, which is designed to eliminate the need to determine fault in an accident.

Question 6

Which of the following statements about automobile insurers that specialize in insuring high-risk motorists with poor driving records is (are) true?
I.The actual premium paid by an applicant is set by the federal government and is independent of an applicant's driving record.
II.The coverages available may be more limited than those written by insurers in the standard market.

Accepted Answer

Statement I is false as there is no federal government regulation on the premium rate charged to high-risk motorists. Statement II is true as insurers that specialize in insuring high-risk motorists may offer limited coverages as they are taking on more risk by insuring drivers with poor driving records.

Question 7

Which of the following statements about the characteristics of current no-fault laws is true?

Accepted Answer

Many current no-fault laws permit payment of survivor benefits to a surviving spouse and children. Option A is incorrect because most laws in force today are not pure no-fault laws. Option B is also incorrect because most laws only apply to bodily injury claims, not property damage. Option D is also incorrect because add-on plans do not restrict the right of accident victims to sue negligent drivers, but rather provide an option for additional coverage beyond the basic no-fault benefits.

Question 8

Under which type of automobile insurance arrangement are all automobile insurers in a state assigned their proportionate share of high-risk drivers based on the total volume of automobile business written in the state?

Accepted Answer

This arrangement is referred to as an automobile insurance plan or assigned risk plan, where high-risk drivers who are unable to obtain insurance in the voluntary market are assigned to insurers based on the insurers' proportionate share of the total volume of automobile business written in the state.

Question 9

Criticisms of compulsory insurance laws include which of the following?
I.They provide less than complete protection since they require only a minimum amount of liability insurance.
II.Even with compulsory insurance laws, a substantial number of motorists continue to operate vehicles without insurance.

Accepted Answer

Compulsory insurance laws require only a minimum amount of liability insurance, so they do not provide complete protection. Additionally, studies have shown that despite these laws, a significant number of motorists continue to drive without insurance. Therefore, both criticisms are valid.

Question 10

Which of the following statements about the factors affecting automobile insurance rates is true?

Accepted Answer

People who drive a car to and from work tend to be charged higher rates than those who use a car for pleasure purposes. This is because commuting increases the amount of time spent on the road, which increases the likelihood of an accident occurring.

Question 11

All of the following are arguments for no-fault automobile insurance laws EXCEPT

Accepted Answer

The answer of All of the following are arguments for...

Question 12

Which of the following statements is true with respect to a pure no-fault auto insurance plan?

Accepted Answer

In a pure no-fault auto insurance plan, an accident victim cannot sue the other party and no payments are made for pain and suffering. All claims are paid by the victim's own insurance company regardless of who caused the accident. Some states have adopted this type of plan, while others have adopted modified no-fault plans that include a threshold for collecting damages or retaining the right to sue.

Question 13

Which of the following statements about shopping for auto insurance is true?

Accepted Answer

Reviewing eligibility for discounts is important to obtain the lowest premium. Other options mentioned in the other answer choices are not correct. Having physical damage insurance is important, but it is not the most important consideration. Dropping liability coverage is not advisable even if you have an older car with a low market value. Finally, price comparisons are valuable because auto insurers offer different premiums based on their calculations and risk assessments.

Question 14

Defects of financial responsibility laws include which of the following?
I.Accident victims may not be fully compensated for their injuries.
II.They apply only to property damage losses, not to bodily injury claims.

Accepted Answer

Financial responsibility laws may not fully compensate accident victims for their injuries, which is a major defect. However, financial responsibility laws do apply to both property damage and bodily injury claims, so statement II is incorrect.

Question 15

Which of the following statements about reinsurance facilities for insuring high-risk drivers is (are) true?
I.Underwriting losses in the reinsurance facility are shared by all auto insurers in the state.
II.An insurer must accept all applicants for insurance, but the insurer has the option of placing high-risk drivers in the reinsurance pool.

Accepted Answer

Both statements about reinsurance facilities for insuring high-risk drivers are true. Statement I is correct because underwriting losses in the reinsurance facility are indeed shared by all auto insurers in the state, spreading the risk and financial burden across the industry. Statement II is also correct because insurers must accept all applicants for insurance, but they have the option to place high-risk drivers in the reinsurance pool, allowing them to manage their risk exposure while still providing coverage.

Question 16

All of the following are major rating factors for determining private passenger automobile insurance premiums EXCEPT

Accepted Answer

It is illegal for race to be a factor in determining insurance premiums, and therefore it is not included as a rating factor. Gender, age, and marital status are all commonly used factors in determining private passenger automobile insurance premiums.

Question 17

Which of the following statements about modified no-fault laws is (are) true?
I.Claims less than a certain dollar threshold must be assumed by the injured accident victim, but the injured person has the right to sue a negligent driver.
II.Claims above a certain dollar threshold are paid in full by an injured accident victim's insurer, and the right to sue a negligent driver is eliminated.

Accepted Answer

The answer of Which of the following statements about modified...

Question 18

Which of the following statements about uninsured motorists coverage is true?

Accepted Answer

Uninsured motorists coverage is designed to protect insured motorists from damages caused by a driver who does not have insurance. However, the innocent motorist must still establish that the uninsured motorist is legally liable for the damages in order to receive coverage. The amount of coverage and specific coverage options vary by state. While it may add additional cost to a policy, the coverage is not necessarily out of reach for all insureds.

Question 19

Under financial responsibility laws, proof of financial responsibility is generally required under which of the following circumstances?

Accepted Answer

Proof of financial responsibility is generally required when there is a failure to pay a final judgment resulting from an auto accident. This means that if someone is found guilty of causing an accident and is ordered to pay damages, they must show proof of financial responsibility (usually in the form of auto insurance) before being allowed to drive again. Options A, B, and D are incorrect as they do not relate to situations where proof of financial responsibility is typically required.

Question 20

A no-fault law under which benefits are paid to an accident victim without regard to fault and the accident victim can still sue the negligent driver who caused the accident is referred to as a(n)

Accepted Answer

An add-on no-fault law allows accident victims to receive benefits from their own insurance company regardless of who is at fault, while still retaining the right to sue the negligent driver. This contrasts with pure no-fault systems, where suing is typically restricted.

Quiz 21: Auto Insurance (continued)

Disadvantages of automobile insurance plans include which of the following? I.High premiums may cause many high-risk drivers to go uninsured. II.Large underwriting profits have resulted in high-risk drivers subsidizing the cost of insurance for good drivers in the voluntary markets.