Final answer:
In the scenario where an insured individual with appropriate coverage rear-ends another vehicle, the insurance will cover the costs for repairs to both the insured’s and claimant’s vehicles, less any deductible. Rental coverage would pay for a rental car, if needed, but is not required in this case as the insured has an alternative vehicle. Property damage coverage handles the damages to the third party's car.
Step-by-step explanation:
When an insured rear-ends a claimant, and there is visible damage to both vehicles, the automobile insurance coverage comes into play. The insured, who has collision coverage, can file a claim for the damages to their vehicle. The collision coverage is designed to cover the cost of repairs to the insured's vehicle minus any deductible. Since the insured also has rental coverage and another car available, the need for a rental car may not arise, avoiding rental costs. However, if a rental car were needed, the rental coverage would pay for this expense after a claim is filed. Moreover, property damage coverage will handle the costs for any damages caused to the claimant's vehicle.
If we look at a simplified example of insurance premiums and payouts, dividing a group of 100 drivers into three risk groups helps illustrate how costs are distributed. Low-risk drivers may just have minor dings costing around $100, while medium and high-risk drivers could face damages from $1,000 to $15,000 respectively. Insurance works by pooling the premiums collected from all insured parties to cover the expenses incurred by the few who have accidents. In such a model, insurers aim to spread the risk among many policyholders to ensure that funds are available for those who need to file a claim.
Insurance pays out for various reasons as highlighted by the scenario. The costs incurred due to car damage in an accident are typically covered under collision and property damage provisions in an auto insurance policy, assuming the insured carries the appropriate coverages.