Final answer:
Collision damage during a share-the-expense car pool is usually covered under a standard auto insurance policy, but specifics can vary. Insurance policies combat moral hazard with cost-sharing mechanisms such as deductibles, copayments, and coinsurance.
Step-by-step explanation:
The answer to the question about collision damage coverage for a covered auto in a share-the-expense car pool is generally true. However, it can vary depending on the specific terms and conditions of an automobile insurance policy. In many cases, if you are participating in a car pool and sharing expenses like gas and tolls without making a profit, your standard auto insurance coverage would protect against collision damage.
Let's consider a simplified example of how automobile insurance functions. Suppose a group of drivers is categorized into three risk-level groups, and damage costs are spread based on the occurrence of accidents. In a given year, small damages like door dings may cost $100 each for some drivers, while others may incur more significant damages costing an average of $1,000, and a few may experience large accidents resulting in costs of $15,000.
To minimize moral hazard, insurance policies include cost-sharing mechanisms like deductibles, copayments, and coinsurance. Deductibles are amounts policyholders pay before the insurance coverage kicks in. Copayments and coinsurance require policyholders to share a part of the repair or medical costs.