Auto Insurance
Auto insurance is insurance consumers can
purchase for cars, trucks, and other vehicles. Its
primary use is to provide protection against losses
incurred as a result of car accidents.
Coverage levels
By buying auto insurance, depending on the type
of coverage purchased, the consumer may be protected
against:
The cost of repairing the vehicle following an
accident
The cost of purchasing a new vehicle if it is
stolen or damaged beyond economic repair
Legal liability claims against the driver or owner
of the vehicle following the vehicle causing damage
or injury to a third party.
Liability insurance covers only the last point,
while comprehensive insurance covers all three. Even
comprehensive insurance, however, doesn't fully
cover the risk associated with buying a new car. Due
to the sharp decline in value immediately following
purchase, there is generally a period in which the
remaining car payments exceed the compensation the
insurer will pay for a "totaled" (destroyed, or
written-off) vehicle.
Public policy
In the United States it is compulsory to purchase
auto insurance before driving on public roads. This
is to protect third parties against the financial
consequences of loss, damage or injury caused by a
vehicle. Typically, coverage against loss of or
damage to the driver's own vehicle is optional. Most
countries relate insurance to both the car and the
driver, however the degree of each varies greatly.
Pricing plans
Except for government-mandated liability
insurance, most car insurance plans charge a premium
based on several risk factors that are likely to
have an impact on the frequency of occurrence or on
the expected cost of future claims. The premium
usually depends on the car characteristics, the
coverage selected (deductible, limit, covered
perils), the usage of the car (commute to work or
not, annual distance driven), and the profile and
driving history of the drivers (age, sex, marital
status, traffic violations and accidents).
For mandatory liability insurance risk factors are taken into account
(giving varying prices), however some places a fixed rate
is charged regardless of the individual
circumstances.
Distance risk factors
■
Flat rate:
Several car insurance plans charge a flat rate
regardless of how much the
car is used.
■
Reasonable estimation:
Several car insurance plans relies on a
reasonable
estimation of the average annual distance
expected to be driven which is
provided by the
insured. This benefits drivers who drive their cars
infrequently.
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