CHAPTER 21 Study Guide

Under what circumstances are drivers typically required to demonstrate proof of financial responsibility under state financial responsibility laws?

-After an accident involving bodily injury or property damage over a certain amount -Upon failure to pay a final judgment resulting from an auto accident -Following a conviction for certain offenses, such as drunk driving or reckless driving

What approaches are available for compensating innocent automobile accident victims?

-Financial responsibility laws -Compulsory insurance laws -Unsatisfied judgement funds -Uninsured motorists coverage -Low-cost auto insurance -"No pay, no play" laws -No-fault auto insurance

What are four principal types of no-fault plans?

-Pure no-fault plan -Modified no-fault plan -Add-on plan -Choice no-fault plan

What suggestions should you consider when shopping for automobile insurance?

-Take advantage of discounts -Improve your driving record -Maintain good credit -Carry adequate liability insurance -Carry higher deductibles -Drop collision insurance on older vehicles -Shop around for auto insurance

Which statement(s) is(are) true with regard to pure no-fault automobile insurance? I.Under pure no-fault insurance, after an automobile accident involving bodily injury, each party collects from his or her own insurer regardless of fault. II.Most states that have adopted no-fault insurance use pure no-fault. a) I only b) II only c) Both I and II d) Neither I nor II

A - I only

All of the following are approaches for protecting innocent victims of automobile accident EXCEPT: a) Uninsured motorist coverage b) No-fault automobile insurance c) Financial responsibility laws d) Higher deductible on collision coverages

D - Higher deductible on collision coverages

How can high-risk drivers who are unable to obtain insurance in the voluntary automobile insurance market obtain auto insurance?

Shared/residual market They are plans in which auto insurers participate to make insurance available to drivers who are unable to obtain coverage in the standard markets

What impact do territory, use of the vehicle, and age of the driver have on automobile insurance premiums?

Territory: City driver pays higher Use of the vehicle: Pleasure use, drive to work, business use, farm use Age of the driver: Teenager/young adult will pay more

No-fault insurance typically provides benefits for essential services expenses.

True

What are the advantages and disadvantages of uninsured motorists coverage as a method of compensating innocent automobile accident victims?

ADVANTAGES: -Motorists have some protection against an uninsured driver -Claim settlement is faster and more efficient than a tort liability lawsuit DISADVANTAGES: -Unless higher limits are purchased, the maximum amount paid is limited to the limits specified in the state's financial responsibility or compulsory insurance law requirement -The injured person must establish that the uninsured motorist is legally liable for the accident -Property damage is not covered in most states

What are the advantages and shortcoming of compulsory automobile insurance law?

ADVANTAGES: -Provide greater protection than financial responsibility laws because motorists must provide evidence of financial responsibility before an accident occurs DISADVANTAGES: -No correlation between compulsory insurances laws and the number of uninsured vehicles on the highway -Lower-income drivers support a liability insurance requirement, many simply cannot afford the coverage -Some states have employed computer databases to attempt to track uninsured motorists. Evidence suggests that such reporting systems have not effectively met their major objective of identifying and tracking uninsured drivers

Which statement(s) is(are) true with regard to the cost of automobile insurance? I.Insurers are not permitted to consider the age of the driver when determining the premium for coverage. II.Urban drivers typically pay more for their coverage than do drivers in rural areas. a) I only b) II only c) Both I and II d) Neither I nor II

B - II only

A number of states have established special funds for compensating innocent accident victims who have exhausted all other means of recovery. These funds are called: a) Joint underwriting association b) Unsatisfied judgment funds c) Reinsurance facilities d) Auto insurance plans

B - Unsatisfied judgment funds

All of the following are arguments in favor of no-fault automobile insurance EXCEPT: a) Determination of fault is often difficult b) Claim payments are often inequitable c) Safe drivers may be penalized d) A large portion of premium dollars are used to pay legal costs

C - Safe drivers may be penalized

What are the arguments for no-fault laws and against no-fault laws?

FOR: -Difficulty in determining fault -Inequity in claim payments -High transaction costs and attorney fees -Fraudulent and inflated claims -Delay in payments AGAINST: -Defects of the negligence system are exaggerated -Claims of efficiency and premium savings are exaggerated -Court delays are not universal -Safe drivers may be penalized -There is no payment for pain and suffering -The tort liability system needs only to be reformed

Adequate physical damage coverage for your auto is the most important consideration when purchasing auto insurance.

False

An insured who owns two vehicles will pay twice as much for auto insurance as will an insured who owns one vehicle, other factors being equal.

False

Carrying limits of automobile liability coverage equal to the state financial responsibility limits assures adequate protection.

False

Compulsory insurance is the only fool-proof method of assuring that innocent victims of auto accident will receive compensation.

False