Question 1

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

This statement is true, as an accident victim must obtain a judgment against the motorist who caused an accident and must show the judgment cannot be collected in order to access unsatisfied judgment funds. The second statement is not entirely true, as the negligent uninsured motorist may still be held legally liable, but they may not be able to pay the damages themselves, leading to the need for unsatisfied judgment funds.

Question 2

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 3

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 setting the actual premium for high-risk motorists with poor driving records. Statement II is true as insurers that specialize in insuring high-risk motorists may offer more limited coverage options compared to those in the standard market.

Question 4

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 without regard to fault, but they can still sue the negligent driver.

Question 5

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

Both criticisms are valid. Compulsory insurance laws only require a minimum amount of liability insurance which may not provide full protection in the event of an accident. Additionally, there are still many drivers who choose to operate vehicles without insurance despite the laws.

Question 6

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 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 residual (shared) market. This market offers coverage to high-risk drivers who are unable to get insurance through the regular market because of their driving record, age, or other factors. Insurers who participate in the residual market share the risk of providing coverage to these drivers.

Question 7

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 8

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 9

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

Accepted Answer

Insurance companies cannot use race as a factor in determining premiums due to anti-discrimination laws. Gender, age, and marital status are all commonly used factors in determining premiums.

Question 10

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. The insurance company pays for damages regardless of who caused the accident.

Question 11

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

Accepted Answer

Uninsured motorists coverage typically requires the innocent motorist to establish that the uninsured motorist is legally liable in order to receive coverage. This is because uninsured motorists coverage is designed to cover damages that the uninsured motorist would have been responsible for if they had insurance. The amount of coverage and the specific coverage options may vary by state, but it is not required to be at least $300,000 in most states. While bodily injury is not covered in all states, property damage is typically covered. The cost of uninsured motorists coverage varies by insurer and individual policy, but it is not necessarily very expensive and may be affordable for many insureds.

Question 12

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

Accepted Answer

Reviewing eligibility for all discounts offered can help an applicant obtain the lowest premium. The other options are not true or advisable. Adequate physical damage insurance is important, but not necessarily the most important consideration. Dropping liability coverage for an older car with low market value may not be a wise choice as liability coverage protects the driver from financial responsibility for damages to others. Price comparisons are valuable in finding the best deal.

Question 13

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 only require drivers to have liability insurance to cover property damage and bodily injury to others. This means that if an accident victim incurs medical expenses or other damages exceeding the liability limits of the at-fault driver's insurance, they may not be fully compensated for their injuries (I). Additionally, financial responsibility laws apply to bodily injury claims as well as property damage losses, so statement II is incorrect.

Question 14

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 share underwriting losses among all participating insurers in proportion to the amount of premiums written in the state. Statement II is false, as rates are set by the joint underwriting association and not by individual companies.

Question 15

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 16

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

Accepted Answer

Insurance companies consider driving to and from work as more risky than driving for pleasure because it involves rush hour traffic and increases the probability of accidents. Therefore, people who use a car to commute to and from work tend to be charged higher rates than those who use a car for pleasure purposes. The other options are incorrect. Collision coverage cost usually decreases as a car gets older because the car's value decreases over time. Rural drivers tend to pay less for auto insurance than city drivers because they have fewer accidents and lower theft rates. Finally, young unmarried male drivers tend to have more accidents than young married male drivers, so they tend to pay higher rates.

Question 17

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 type of arrangement is commonly referred to as the "automobile insurance plan" (AIP), which is also known as the "shared market" or "assigned risk pool" in some states. Under this arrangement, high-risk drivers who cannot obtain insurance in the voluntary market are assigned to insurance companies in proportion to the amount of business they write in the state. This helps to ensure that high-risk drivers have access to insurance coverage, while also spreading the cost of claims among all insurers in the state.

Question 18

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

Accepted Answer

Most no-fault laws include provisions for survivor benefits, allowing payments to a surviving spouse and children in the event of a fatal accident. This is a common feature of no-fault insurance laws, which aim to provide prompt financial support regardless of who was at fault in the accident.

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 an individual fails to pay a final judgment resulting from an auto accident. This may include providing evidence of insurance coverage or posting a bond to cover the damages. Financial responsibility laws may vary by state, but in general, they require drivers to carry a minimum amount of liability insurance to cover damages caused in an accident. The other choices listed are not typically associated with proof of financial responsibility requirements.

Question 20

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...

Quiz 23: Auto Insurance and Society