Final answer:
Liability insurance coverage typically costs more for an expensive car than for an inexpensive car due to the higher financial risk associated with insuring higher-value vehicles.
Step-by-step explanation:
The statement that liability insurance coverage would cost more for an expensive car than for an inexpensive car of the same age can be considered true. Insurance premiums are typically set to reflect the estimated risk associated with insuring a particular vehicle.
Expensive cars often represent a higher financial risk in the event of an accident due to their higher value and the potential cost of repairs. Therefore, insurers typically charge higher premiums for these vehicles.
The concept of actuarially fair insurance premiums is based on the principle that the amount paid should accurately reflect the risk group.
For instance, younger male drivers generally have more car accidents than their female counterparts and would thus be charged more for car insurance.
Similarly, a more expensive vehicle would be associated with a higher risk due to the greater financial loss the insurance company would have to cover in the event of an accident.
Insurance companies often categorize individuals into risk groups to determine the appropriate premium. An expensive car is likely assessed to be at a higher risk of incurring significant costs for the insurance company, whereas an inexpensive car would pose a lesser financial risk, resulting in a lower cost for liability coverage.