1. Lesson 22.2 Automobile and Umbrella Insurance
Learning Objectives
LO 2-1 Discuss common types of automobile insurance coverage.
LO 2-2 Explain the concept of umbrella liability insurance.
Chapter 22
© 2016 South-Western, Cengage Learning

2. Automobile Insurance
Automobile insurance covers costs of damage to the vehicle, its owner, and any passengers.
It also covers costs of repairs to other vehicles, medical expenses of occupants in other vehicles, and property damage caused by an accident.
Standard policies also cover theft of the vehicle and/or its contents.
Chapter 22
© 2016 South-Western, Cengage Learning

3. Cost of Automobile Insurance
Premiums are based on a number of factors, including
Type of car (model, style, and age of car)
Driver classification (age, sex, and marital status)
Driving record
Location of driver and car
Distances driven
Purpose of driving
Other regular drivers of the car
Chapter 22
© 2016 South-Western, Cengage Learning

4. Type of Car
New and expensive cars cost more to insure because they are worth more and would therefore be more expensive to repair or replace.
Ratings from crash tests and higher risk of thefts can cause premium increases.
Chapter 22
© 2016 South-Western, Cengage Learning

5. Driver Classification
Insurers base their premiums on statistical probabilities.
Young, single drivers are statistically more likely to be involved in an accident than married drivers over age 25.
Women are generally better risks on the road than men.
Chapter 22
© 2016 South-Western, Cengage Learning

6. Driving Record
Your driving record includes the number and type of traffic tickets you’ve received for driving infractions and misdemeanors, along with the number of accidents in which you’ve been involved.
Infraction – minor violation punishable by a fine.
Moving violation – violation while the car is in motion.
Nonmoving violation – violation while the car is not in motion.
Chapter 22
© 2016 South-Western, Cengage Learning

7. Driving Record
(continued)
More serious offenses (misdemeanors) may incur fines as well as jail time.
Many insurance companies use point systems to calculate premiums.
For example, an infraction might count as 1 point and a misdemeanor might count as 5 points.
When you reach 3 points, your premiums rise. If you reach 10 points, your policy could be canceled.
Chapter 22
© 2016 South-Western, Cengage Learning

8. Other Factors
Certain geographic locations (such as large cities) have higher accident rates.
Length of commute (in miles) each day
Who will drive the car most
Number of claims filed
Whether the accidents were your fault
Chapter 22
© 2016 South-Western, Cengage Learning

9. Types of Automobile Insurance Coverage
There are five basic types of automobile insurance.
Liability
Collision
Comprehensive
Personal injury protection (PIP)
Uninsured/underinsured motorist
Chapter 22
© 2016 South-Western, Cengage Learning

10. Liability Coverage
Most states require all drivers to carry liability coverage.
The purpose of liability coverage is to protect the insured against claims for bodily injury to another person or damage to another person’s property.
Chapter 22
© 2016 South-Western, Cengage Learning

11. Collision Coverage
Collision coverage is auto insurance that protects your own car against damage from accidents or vehicle overturning.
This coverage will pay for the damage to your car in the event you are at fault and the other driver’s liability insurance does not have to pay.
Most collision coverage has a deductible.
Chapter 22
© 2016 South-Western, Cengage Learning

12. Comprehensive Coverage
Comprehensive coverage protects you from damage to your car from causes other than collision or vehicle overturning.
The causes might be fire, theft, tornado, hail, water, falling objects, natural disasters, and acts of vandalism.
Chapter 22
© 2016 South-Western, Cengage Learning

13. Personal Injury Protection (PIP)
Also known as medical coverage insurance, personal injury protection (PIP) is auto insurance that pays for medical, hospital, and funeral costs of the insured and his or her family and passengers, regardless of fault.
If the insured is injured as a pedestrian or bicyclist, this insurance will pay the medical costs.
Chapter 22
© 2016 South-Western, Cengage Learning

14. Uninsured/Underinsured Coverage
Uninsured/underinsured coverage is auto insurance that pays for injuries to you and your passengers when the other driver is legally liable but unable to pay.
In other words, if the other driver is legally at fault for the accident but has no insurance, or insurance that is insufficient to cover the costs, your insurer will pay your medical costs.
Chapter 22
© 2016 South-Western, Cengage Learning

15. No-Fault Insurance
No-fault insurance laws set up a system of compensation for auto accidents that does not require a legal determination of who was at fault before claims are paid.
No-fault insurance is auto insurance in which drivers receive reimbursement for their expenses from their own insurer, no matter who caused the accident.
Chapter 22
© 2016 South-Western, Cengage Learning

16. Assigned-Risk Policies
Every state has an assigned-risk pool that consists of people who are unable to obtain automobile insurance due to the high risk they present.
The state assigns these people to different insurers in the state.
The insurers must then provide coverage.
The insurance premiums may cost the insured several times the normal rate.
Chapter 22
© 2016 South-Western, Cengage Learning

17. Umbrella Liability Insurance
Umbrella liability insurance supplements your basic auto and property liability coverage by expanding limits and including additional risks.
This type of policy protects you from extraordinary losses, which are extremely high claims because of unusual circumstances.
Chapter 22
© 2016 South-Western, Cengage Learning