Question

If a motorist is involved in an accident in which there is more than $500 in property damage, what must the motorist do?

1) Report the accident to the police
2) Exchange contact and insurance information with the other party involved
3) Notify their insurance company

Answer 1

When involved in an accident with property damage over $500, a motorist must report the accident to the police, exchange information with the other party, and notify their insurance company. An example of pooled risk is when 100 drivers pay a $1,860 premium to cover $186,000 in total accident costs, demonstrating the principle behind insurance.

Step-by-step explanation:

If a motorist is involved in an accident with more than $500 in property damage, they should follow several steps:

1. Report the accident to the police immediately.
2. Exchange contact and insurance information with the other party involved in the accident.
3. Notify their insurance company about the accident to start the claim process.

Using an example, if we have a group of 100 drivers with varying accident costs. In a year, 60 drivers incur $100 each for minor damages, another 30 drivers face $1,000 each for medium-sized accidents, and 10 drivers experience $15,000 each in damages from large accidents. Without any way to predict who will fall into each risk group, the total damage cost amounts to $186,000.

If each driver paid a $1,860 insurance premium, the collected money would be enough to cover the damage costs incurred. This illustrates how insurance pools risk and premiums to protect all insured parties financially.