Question

Although car insurance is legally required by all states, the coverage provided by different policies can vary dramatically, such that even an "insured" motorist can end up paying large amounts of money out-of-pocket. Consider the following example involving Albert, who has a family auto policy (FAP) that provides liability coverage with limits of 15/30/15, no medical payment insurance, and uninsured and underinsured motorist coverage with limits of 1/2. He has collision and comprehensive auto insurance, both with a deductible of $100.

Suppose one day Albert rear-ends a truck when it stops while he is looking down at his radio. Fortunately, he is not badly injured, but the medical bill for his hospital examination nonetheless amounts to $484. The driver of the truck, a woman named Hannah, was unharmed but nonetheless required a hospital examination costing $864. Hannah’s insurance company successfully filed a claim against Albert, exercising subrogation rights.
Coverage A of Albert’s plan will reimburse him with ($0, $864, $30000) for Hannah’s medical bills. Albert’s medical bills are (Not Covered, Covered under coverage A, Covered under coverage B, Covered under coverage C) .
Albert’s car required only a new bumper, costing $584 to replace. Hannah’s truck required $3,650 in repairs, and its trailer contained a racehorse valued at $18,000 that fell and broke its legs upon the impact. Albert is therefore liable for the full value of the horse.
Albert’s liability coverage also will reimburse him for up to $________
in property damage, so he is responsible for paying ($8150, $6650, $0, $7234) out-of-pocket in property liability damages. Which of the following is true regarding the damage to his own car?
[] It will be reimbursed up to the difference between his liability coverage and the damage to other property.
[] It will be reimbursed fully, minus the $100 deductible.
[] It is not covered under his policy.

Answer 1

Albert's liability coverage will reimburse him for Hannah's medical bills and property damage, but the damage to his own car is not covered under his policy.

Step-by-step explanation:

According to Albert's family auto policy (FAP), his liability coverage will reimburse him up to $30,000 for Hannah's medical bills. Albert's medical bill of $484 will be covered under coverage A of his policy. In terms of property damage, Albert's liability coverage will reimburse him for up to $18,000, the value of the racehorse. Therefore, Albert is responsible for paying $0 out-of-pocket in property liability damages. As for the damage to his own car, it is not covered under his policy.

Answer 2

Albert's liability coverage will cover Hannah's medical bills and part of the property damage. He will pay a remaining balance for property damage exceeding his coverage limit, and his own medical bills and car repairs will be partially covered after the collision deductible. Premiums in insurance are adjusted based on risk groups to ensure equitable distribution of costs.

Step-by-step explanation:

Albert's auto insurance policy, specifically liability coverage, includes a limit of 15/30/15. This means his insurance will cover up to $15,000 for bodily injury per person, $30,000 for total bodily injury per accident, and $15,000 for property damage per accident. In the scenario described, Albert is responsible for Hannah's $864 medical bill and the $18,000 value of the racehorse, in addition to his own car repairs. Since his policy covers $15,000 in property damage, Albert will be required to pay the remaining balance, which is the difference between the total property damage ($3,650 for the truck repairs plus $18,000 for the horse) and the policy coverage limit.

Albert's insurance will reimburse Hannah $864 for the medical bill under Coverage A of his liability insurance. Albert's own medical bills are not covered because he does not have medical payment insurance. As for his car damage, since he has both collision and comprehensive insurance with a $100 deductible, the repair cost of $584 will be reimbursed, but he will need to pay the $100 deductible out-of-pocket.

Insurance companies classify people into risk groups and adjust premiums accordingly to ensure those with lower risks don't disproportionally subsidize those with higher risks. In the simplified example of how insurance works, those 100 drivers would collectively pay $186,000 in damages, with the low risk drivers effectively subsidizing the high risk drivers if an equal premium model was employed without risk assessment.