Final answer:
Minnesota legally requires vehicle owners to maintain auto insurance. Rates are based on factors like safety ratings, driver's age, and driving history, with the continual expense of insurance outlasting vehicle payments. Insurance companies balance the risk pool by setting prices that can lead those with lower risks to subsidize higher-risk drivers.
Step-by-step explanation:
In most states, including Minnesota, there is a legal requirement for vehicle owners to carry auto insurance. This is a form of government intervention in the insurance markets to ensure that everyone contributes to the risk pool, which helps in dealing with what is known as adverse selection. Insurance companies set their rates based on an average for the market, which can result in those with lower risks subsidizing those with higher risks.
Factors influencing insurance rates include the vehicle's safety rating, the driving history of the owner, and the age of the driver, with younger drivers generally paying more. Insurance can be paid monthly, quarterly, or bi-annually, but it is an ongoing expense beyond the tenure of paying off the vehicle itself. With required insurance coverage, insurance companies may still avoid insuring high-risk individuals or may charge them higher rates to compensate for the higher risk they present.
If, for example, each of 100 drivers pays a $1,860 premium annually, the insurance company collects sufficient funds to cover the costs associated with accidents that might occur among those drivers.