Final answer:
If involved in an accident with damages of $1,000 or more, it's essential to report the incident. In an illustrative scenario of 100 drivers with an insurance premium of $1,860 each, the total collected can cover $186,000 in damages, demonstrating how insurance works as a risk pool to pay for accidents.
Step-by-step explanation:
Understanding Insurance Premiums and Accident Coverage, When addressing the question of what to do if you're involved in an accident with $1,000 or more in injury, death, or property damage, it's not only important to follow the law by reporting the accident to the authorities but also to understand how automobile insurance works.
For example, if 100 drivers each pay an annual premium of $1,860, the insurance company collects a total of $186,000. This collected amount is used to cover the costs of accidents that occur within that group of insured individuals. Given the scenario of dividing these 100 drivers into three levels of risk—low, medium, and high—with varying levels of accidents and associated costs, the premium is calculated to ensure that the collective funds are sufficient to cover the total damage incurred, which in this example is also $186,000.
The damage includes a few door dings or chipped paint costing $100 each for 60 drivers, medium-sized accidents costing $1,000 each for 30 drivers, and large accidents costing $15,000 each for 10 drivers. Without the ability to identify which drivers will be at which level of risk, insurance companies spread the risk among all policyholders, leading to a collective pool of resources used to pay for damages throughout the year.