Question

Stacy purchases a previously owned 2005 Toyota Camry with 27,000 miles on 10/1/2005 from Land O' Lakes Auto Sales & Service. She adds the car to her PAP with $100,000 Liability limits, Collision with a $500 deductible, Comprehensive with a $250 deductible, Towing and Labor with a maximum limit of $75.00, and Mechanical Breakdown coverage with a $100 deductible, good for 12 months or 12,000 miles, whichever comes first. On 9/25/2006 Stacy's car breaks down while on her way in to work, leaving her stranded on the interstate until her husband picks her up. He has a friend tow the car to his home where it sits for a week while Stacy is out of town on a business trip. On 10/5/2006, after Stacy returns home and has the car towed to Land O' Lakes Auto Sales & Service for diagnosis and repair, she learns that the repair job will cost $1,575.00 and that it is not covered under warranty. After repairs are complete, the repair shop gives Stacy a bill for $1,575.00 in repairs, $200 for the tune-up she authorized while it was there, and a bill for $50 for towing.

Stacy reports the claim and turns over the repair bill to her carrier. How much will her policy pay for repair of the vehicle?
(A) $1,475.00
(B) $1,075.00
(C) Nothing. The policy was only good for 12 months or 12,000 miles. It had expired.
(D) $1,575.00

Answer 1

Stacy's car insurance policy will cover the repair cost of $1,575 minus the $100 deductible for Mechanical Breakdown, making the total payment from the policy $1,475.00. The tune-up cost and the excess towing cost are not covered by her policy.

Step-by-step explanation:

In assessing Stacy's claim, we need to consider the terms of the Mechanical Breakdown coverage. The policy indicates that the Mechanical Breakdown coverage has a $100 deductible and is valid for 12 months or 12,000 miles, whichever comes first. Since Stacy purchased the vehicle on 10/1/2005 and the breakdown occurred on 9/25/2006, the coverage is still in effect, being just under the 12-month limit.

Now, considering the costs, Stacy's policy will not cover the $200 tune-up as it's a maintenance expense, and the towing cost should be covered under the Towing and Labor coverage up to the $75 maximum limit. However, the breakdown repair costs $1,575, and with the presence of a $100 deductible for the Mechanical Breakdown coverage, Stacy needs to pay the first $100. Therefore, Stacy's carrier will pay for the repair after the deductible, which is $1,575 - $100 = $1,475.00.