1. Hand Out # 6 Auto Insurance
THIS HANDOUT COVERS:
CLO # 6 Assess the costs and risks associated with personal liability and automobile coverage

2. Learning objectives
After studying this chapter , you should be able to:
Identify the parties that are insured for liability coverage under the personal auto policy (PAP)
Describe the liability coverage in the PAP
Explain the medical payments coverage in the PAP
Describe the uninsured motorists coverage in the PAP
Explain the coverage for damage to your auto in the PAP
Explain the duties imposed on the insured after an accident or loss.

3. Types of Automobile Policies
There are two general types of auto insurance policies: commercial use and personal use.
Each category has standard forms.
However, variations result from competition that motivates insurers to try to differentiate their products.

4. General Nature of Personal Auto Policy
Designed to cover three types of loss:
Legal liability
Injury to insured or family members
Damage to the auto itself
Subject to limitations, the policy covers:
Others while driving the insured auto
The named insured and family while driving other autos

5. Personal Auto Policy Eligibility
1. Auto owned by individual or husband & wife
2. Private passenger automobile
3. Pickup or van that is not used for delivery or transportation of goods unless
incidental to business of installing or repairing furnishings or equipment
for farming or ranching

6. Personal automobile policy
The personal automobile policy (PAP) is the automobile insurance contract purchased by most individuals.
It begins with a declarations page, general insuring agreement, list of important definitions, followed by the policy’s six major parts.
Part A—Liability coverage
Part B—Medical payments coverage
Part C—Uninsured motorists coverage
Part D—Coverage for damage to your auto
Part E—Duties after an accident or loss
Part F—General provisions

7. Liability Coverage
Liability coverage (Part A) is the most important part of the PAP
It protects a covered person against a lawsuit or claim arising out of the ownership or operation of a covered vehicle
Although liability coverage under the PAP usually is subject to a single, aggregate limit (called a combined single limit [CSL]), it can be divided by use of an endorsement into two major subparts:
Bodily injury liability
Property damage liability.

8. Liability Coveragee
Single limit: Coverage under which the insurer will pay on your behalf for all losses up to a specified limit for any single accident, whether the losses are property-related or bodily injury-related
Split limit: Coverage under which the insurer applies a set of two limits to bodily injury, and a single, aggregate to property damage.

9. Liability Coverage Split limit
The coverage is usually written in split limits, where the amounts of insurance for bodily injury liability and property damage liability are stated separately
Split limits of 250/500/100 mean that you have bodily injury coverage of $250,000 for each person, a maximum of $500,000 of bodily injury coverage per accident, and a maximum of $100,000 for property damage liability

10. Liability Coverage Liability coverage applies to:
The named insured and any resident family member
Any person using the named insured’s covered auto
Any person or organization legally responsible for any insured’s use of a covered auto on behalf of that person or organization
Any person or organization legally responsible for the named insured’s or family members’ use of any auto or trailer (other than a covered auto or one owned by the person or organization)

11. Liability Coverage Exclusions to the coverage include:
Intentional injury or damage
Property owned or transported
Property rented, used, or in the insured’s care
Bodily injury to an employee
Use as a public livery or conveyance
Vehicles used in the auto business
Vehicles with fewer than four wheels
Vehicle furnished for the insured’s regular use

12. Liability Coverage If more than one liability policy covers a loss:
The insurer pays its pro rata share of the loss for an owned vehicle
The insurance coverage is excess over any other insurance for a nonowned vehicle.

13. Liability Coverage
Sami is the named insured and borrows Mohamed’s car with his permission. Sami has $50,000 of liability insurance and Mohamed has a 100,000$ limit. Both policies will cover any loss. Sami negligently injures another motorist and must pay damages of $125,000. The rule is that insurance on the borrowed car is primary, and other insurance is excess.
Each company pays as follows:
Mohamed’s insurer (primary) $100,000
Sami’s insurer (excess) $25,000
Total $125,000

14. Medical Payments Medical Payments Coverage—Part B
The insurer agrees to pay reasonable expenses incurred within three years from the date of an accident for necessary medical and funeral services because of bodily injury caused by an accident and sustained by a covered person.
The limit of liability for medical payments is on a per person basis and fixed by the insurance company.

15. Medical Payments The named insured and family members are covered:
While occupying any motor vehicle, or
As pedestrians when struck by a motor vehicle
Other persons occupying a covered auto are covered
But not covered in a nonowned vehicle
If more than one auto policy covers a loss:
The insurer pays its pro rata share of the loss for an owned vehicle
The insurance coverage is excess over any other insurance for a nonowned vehicle

16. Medical Payments Exclusions
Same as Liability exclusions:
Vehicles with less than four wheels
While used as public or livery conveyance
Owned by/furnished for regular use of named insured
Owned by/furnished for regular use of resident relatives
Operated without permission
Trucks in business
Occupying a vehicle in facility for racing or competing

17. Uninsured Motorists Coverage
Uninsured Motorists Coverage—Part C
Uninsured motorists coverage: Insurance that pays for bodily injuries (and property damage in some cases) caused by an accident with another vehicle whose driver is negligent and
has no liability insurance or less than that required by law,
was a hit-and-run driver, or
is a driver whose insurance company is insolvent.
Minimum coverage is the amount required to comply with your state’s financial responsibility or compulsory insurance law.
The coverage is not intended to pay for punitive damages.

18. Uninsured Motorists Coverage
Underinsured motorists coverage fills in the coverage gap that arises when the negligent party meets the financial responsibility law of the state, but the auto accident victim has losses in excess of the negligent driver’s liability limit.

19. Uninsured Motorists Coverage
The coverage applies to:
The named insured and family members
Another person while occupying a covered auto
Any person legally entitled to recover damages
Coverage does not apply when:
An insured is injured in, or by, a vehicle owned by the named insured, but not insured under the policy
There is primary coverage under another policy
The vehicle is used as a public livery or conveyance
When workers compensation benefits are applicable

20. Uninsured Motorists Coverage
Underinsured motorists coverage can be added to the PAP to provide more complete protection
In general, the maximum amount paid is the underinsured motorist’s coverage limit stated in the policy less the amount paid by the negligent driver’s insurer
Coverage is typically added as an endorsement
Some states make coverage mandatory, while others make it optional

21. Coverage for Damage to Your Auto: Physical Damage coverage
The physical damage coverage of the PAP is designated Coverage Damage to Your Auto.
Under the coverage for damage to your auto, the insurer agrees to pay for any direct and accidental loss to a covered auto or any nonowned auto
A collision is defined as the upset of your covered auto or nonowned auto or its impact with another vehicle or object
Collision losses are paid regardless of fault

22. Coverage for Damage to Your Auto: Physical Damage coverage
An other-than-collision loss is a loss due to the following perils:
Missiles or falling objects
Hail, water, flood, fire, windstorm
Riot or civil commotion
Malicious mischief or vandalism
Contact with a bird or animal
Theft
Glass breakage
Explosion or earthquake

23. Coverage for Damage to Your Auto: Physical Damage coverage
A nonowned auto is also covered under the Part D coverages
A nonowned auto is a private passenger auto, pickup, van, or trailer not owned by or furnished or made available for regular use of the named insured or family member, while it is in the custody of or being operated by the named insured or family member
The coverage also applies to a temporary substitute vehicle
A collision damage waiver (CDW) may be unnecessary on a rental car if you carry collision and comprehensive coverage on your own car

24. Coverage for Damage to Your Auto: Physical Damage coverage
Part D also pays for temporary transportation expenses, e.g., for train, bus, taxi expenses
The expense must be the result of a covered loss
Coverage is subject to a daily and total limit
Includes charges from a rental car company for loss of daily rental
Coverage for towing and labor costs can be added by an endorsement

25. Coverage for Damage to Your Auto: Physical Damage coverage
Exclusions to the coverage include:
Use as a public livery or conveyance
Damage from wear and tear, freezing, and mechanical or electrical breakdown
Radioactive contamination or war
Certain electronic equipment
Tapes, records, and disks
Government destruction or confiscation
Trailer, camper body, or motor home
Racing vehicle

26. Coverage for Damage to Your Auto: Physical Damage coverage
For a total loss, the policy pays the actual cash value less the deductible
For a partial loss, the policy pays only the amount necessary to repair or replace the damaged property of like kind and quality
Insurers can add a clarifying endorsement to exclude coverage for diminution in value from a direct and accidental physical damage loss
The insured can also purchase gap insurance

27. Coverage for Damage to Your Auto: Physical Damage coverage
If more than one auto policy covers a physical damage loss:
The insurer pays its pro rata share of the loss for an owned vehicle
The insurance coverage is excess over any other insurance for a nonowned vehicle
The policy includes an appraisal provision for handling disputes over the amount of physical damage loss
Either party can demand an appraisal of the loss

28. Duties After an Accident or Loss
After an accident, the insured is required to perform certain duties, such as:
Promptly notify the insurance company or agent
Cooperate with the insurer in the investigation
Send the insurer copies of any legal notices received in connection with an accident
Take a physical exam, if required
The police must be notified if a hit-and-run driver is involved
The insurer is allowed to inspect your vehicle if you are seeking coverage under Part D
The insurer can deny coverage only if failure to comply is prejudicial to the insurer

29. General Provisions
All states restrict the insurer’s right to cancel or nonrenew coverage
Cancellation provision: The named insured can cancel at any time by returning the policy to the insurer or providing written notice. If a policy has been in force for more than 60 days, the insurer can cancel only if:
The premium has not been paid
The driver’s license of any insured has been suspended, or
The policy was obtained through material misrepresentation

30. General Provisions
Nonrenewal: if an insurer decides to discontinue coverage, the insured must be given notice at least 20 days before the end of the policy period
Automatic termination: a policy is automatically terminated if the insured decline’s the insurer’s offer to renew

31. Auto Insurance Premium Rates
Pricing factors of auto insurance include the make of the car, age of the car, whether the car is driven to and from work, age and gender of the driver, marital status, and location of the car.
Additionally, the driving record is an important factor in classifying a driver as a preferred driver or substandard risk.
Data show that younger drivers and male drivers cause more accidents.