Final answer:
McKenzie opted for only liability coverage for her first car due to its age and value. Liability insurance is the minimum legal requirement and covers damages to others in an accident. Insurance premiums are determined by factors such as risk, driving history, and the car's safety rating.
Step-by-step explanation:
When McKenzie decided to purchase her first car, a 10-year-old sedan, for $3,000 in cash, she had the option to choose different types of insurance coverage. Since the car is older and less valuable, she might opt for only liability coverage, which is generally the minimum insurance requirement by law and covers damages and injuries to others if she is at fault in an accident. It does not cover damages to her own car. The other options like collision coverage and comprehensive coverage are optional and would cover damages to her car, but they would come with a higher premium.
Using a simplified example, if a group of 100 drivers pays a premium of $1,860 each, the insurance company collects the $186,000 needed to cover the costs of accidents. This example illustrates how insurance rates are set based on the overall risk and cost of damages incurred by a group of policyholders. McKenzie's premiums will also be affected by factors like the car's safety rating, her driving history, and other risk assessments conducted by the insurance provider.