Question 1

Alan has been involved in three accidents and has been ticketed for a number of driving violations. He tried to purchase auto insurance, but three insurers refused to sell him coverage. The generic name for state plans designed to insure drivers like Alan is the

Accepted Answer

The residual market is a generic name for state plans that provide auto insurance to drivers who are unable to obtain coverage in the voluntary market, such as those with poor driving records or a history of accidents.

Question 2

Amber believes that her auto insurance premium is too high. Which of the following would most likely lower Amber's premium?

Accepted Answer

Increasing the physical damage deductible would most likely lower Amber's premium, as this means she would be responsible for paying a higher amount out of pocket before her insurance coverage kicks in. This presents less risk to the insurance company, so they may lower her premium in response. Moving to an urban or suburban area could actually increase Amber's premium, as there is typically more traffic and higher rates of accidents in these areas. Increasing liability insurance or adding "other-than-collision loss" coverage would also likely increase Amber's premium.

Question 3

A number of benefits are payable under no-fault plans. Under one provision, benefits are paid for tasks normally performed by the insured, including such things as lawn care, housework, and home repairs. These tasks are called

Accepted Answer

These tasks are known as "essential services expenses," which are tasks normally performed by the insured that are necessary for the upkeep and maintenance of their home and personal lives. These benefits may cover expenses like lawn care, housework, and home repairs that would otherwise become a burden on the insured due to their injuries.

Question 4

A few states have enacted laws to make minimum amounts of liability insurance available at reduced rates to individuals who cannot afford regular insurance or who have limited financial assets to protect. The coverage made available through such a plan is called

Accepted Answer

The coverage made available through such a plan is called low-cost auto insurance. Option A is incorrect as probationary insurance is a type of insurance that is provided to drivers who have been convicted of traffic violations, and are thus seen as a higher risk to insure. Option B is incorrect as uninsured motorists insurance is coverage that protects the insured in the event of an accident with a driver who is uninsured. Option C is incorrect as no-fault auto insurance is a type of insurance where each driver's own insurance provider is responsible for paying for their damages, regardless of who is at fault for the accident.

Question 5

In the state where Susan lives, drivers whom private insurance companies do not want to insure are placed in a common pool, and each insurer pays its pro rata share of pool losses and expenses. A common policy is used for all high-risk drivers. Susan's state handles high-risk drivers through a(n)

Accepted Answer

Susan's state uses a joint underwriting association to handle high-risk drivers, which is a type of automobile insurance plan where insurers share the risks and losses of insuring high-risk drivers through a common policy. This is different from a pure no-fault plan, which focuses on who pays for damages in an accident regardless of fault, and a specialty auto insurer, which is a company specifically designed to insure high-risk drivers.

Question 6

Scott had trouble obtaining auto insurance. After three companies refused to insure him, he called the state insurance department. A representative suggested he obtain coverage through Last Chance Insurance Company because "that's all they insure-high-risk drivers." Scott contacted Last Chance. He was not refused coverage; however, the premium Scott was required to pay was three times greater than the average premium in the market. Last Chance Insurance Company is a(n)

Accepted Answer

Last Chance Insurance Company is a specialty auto insurer, which means they specialize in providing coverage to high-risk drivers who have been rejected by other traditional insurance companies. Their premiums are typically higher than average due to the increased risk posed by their policyholders.

Question 7

A state law that requires individuals who have been involved in an auto accident or who have been convicted for certain vehicle-related offenses to demonstrate the ability to pay liability claims up to a specified dollar amount is called a(n)

Accepted Answer

A financial responsibility law requires individuals to show proof of their ability to pay for damages resulting from an auto accident. This can be done through purchasing liability insurance, posting a bond, or demonstrating other means of financial responsibility. This is different from compulsory insurance laws, which require individuals to carry a minimum level of liability insurance coverage, and unsatisfied judgment fund laws, which provide a source of compensation for individuals who are unable to collect judgments against uninsured or underinsured drivers. "No pay, no play" laws limit the ability of uninsured drivers to recover non-economic damages from insured drivers in the event of an accident.

Question 8

Janet was unable to obtain auto insurance in the voluntary insurance market. She was contacted by the state insurance department and notified that XYZ Insurance would be her insurer. The mechanism used in Janet's state to provide auto insurance to high-risk drivers is a(n)

Accepted Answer

An automobile insurance plan (also known as assigned risk plan) is a mechanism used by states to provide auto insurance to high-risk drivers who are unable to obtain insurance in the voluntary market. Under this plan, insurance companies are required to participate and accept a certain number of high-risk drivers assigned to them by the state. So, in Janet's case, she was assigned to XYZ Insurance through the automobile insurance plan. Joint underwriting associations, specialty automobile insurers, and reinsurance facilities are other types of insurance mechanisms that may be used in certain situations, but they are not specifically designed to provide auto insurance to high-risk drivers.

Question 9

The residual market for auto insurance is designed to provide insurance to

Accepted Answer

The residual market for auto insurance, also known as the "assigned risk plan," is designed to provide coverage to drivers who are unable to obtain insurance in the standard market, typically due to a high-risk profile or poor driving record. These drivers are assigned to an insurance company in the residual market, which is required to provide coverage regardless of the driver's risk level.

Question 10

Which of the following statements is (are) true with respect to the use of credit-based insurance scores as an auto insurance rating factor?
I.Insurers claim that drivers who have poor insurance scores are expected to have relatively more accidents.
II.The use of insurance scores has been banned as a rating factor in all states as it unfairly discriminates against certain groups of individuals.

Accepted Answer

Insurers do claim that drivers with poor insurance scores are expected to have more accidents, and the use of insurance scores as a rating factor is not banned in all states. While some states have imposed restrictions on their use or banned them for certain lines of insurance, they are still widely used by many insurers in many states.

Question 11

Some states have enacted laws which prohibit uninsured drivers from suing a negligent driver for noneconomic damages, such as pain and suffering. These laws are called

Accepted Answer

"No pay, no play" laws prohibit uninsured drivers from suing negligent drivers for noneconomic damages, such as pain and suffering, as a way to incentivize drivers to carry liability insurance. These laws are currently in effect in several states.

Question 12

Sharon lives in a state that has a no-fault automobile insurance law. Under the law, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold. The no-fault law in Sharon's state is a(n)

Accepted Answer

Sharon's state follows a modified no-fault plan as under this plan, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold.

Question 13

Bill was severely injured by an uninsured driver. Bill did not purchase uninsured motorists coverage, and the other driver, although held liable, could not pay the damages awarded. After exhausting other sources of recovery, Bill learned that his state is one of a few states that has a special fund to compensate innocent accident victims. These state funds are called

Accepted Answer

Unsatisfied judgment funds are established by some states to compensate individuals who are unable to collect damages from uninsured motorists, fitting the scenario described.

Question 14

The multi-car discount is based on the assumption that

Accepted Answer

The multi-car discount is based on the assumption that two cars owned by the same person will not be driven as frequently as one car. This is because people may choose to use one car over the other for different purposes or at different times. As a result, the insurance company may consider the overall risk of insuring multiple cars to be lower than the risk of insuring a single car.

Question 15

In Maryland, drivers who are unable to obtain auto insurance in the voluntary market are insured through a(n)

Accepted Answer

The answer of In Maryland, drivers who are unable to...

Question 16

A few states have dual automobile insurance systems. A motorist can pay a higher premium and retain the right to sue under the tort system, or pay a lower premium and be covered under the state's no-fault law. This dual system is called a

Accepted Answer

The described system is a choice no-fault plan, as it allows motorists to choose between no-fault coverage with lower premiums or retaining their right to sue under the tort system with higher premiums.

Question 17

No-fault benefits are provided by adding an endorsement to the auto insurance policy. What is this endorsement typically called?

Accepted Answer

The endorsement that provides no-fault benefits is called personal injury protection coverage.

Question 18

New Jersey's dollar-a-day auto insurance coverage is limited to

Accepted Answer

New Jersey's dollar-a-day auto insurance coverage is limited to Medicaid recipients. This is a special program designed to help low-income individuals afford auto insurance. Elderly individuals, drivers under age 25, and high-risk drivers do not qualify for this program.

Question 19

"No pay, no play" laws have which of the following characteristics?

Accepted Answer

"No pay, no play" laws restrict uninsured drivers from suing for noneconomic damages such as pain and suffering, unless they meet certain exceptions. These laws are designed to incentivize drivers to carry auto insurance by limiting their ability to recover certain types of damages if they themselves do not have insurance.

Question 20

A credit-based score that insurers claim is highly predictive of future claims costs is an individual's

Accepted Answer

The credit-based score that is highly predictive of future claims costs is an individual's insurance score. This score is used by insurers to assess a person's likelihood of filing a claim and the potential cost of that claim. It takes into account factors like credit history, payment history, and length of credit. The higher the score, the lower the perceived risk and the lower the cost of insurance.

Quiz 21: Auto Insurance (continued)