Insurance Car Insurance 5 — Questions and Answers
Question 1: What does 'personal injury protection' (PIP) cover in a no-fault state?
- Damage to the other driver's vehicle
- Your own medical expenses and lost wages regardless of fault (Correct answer)
- Legal fees if you are sued after an accident
- Theft or vandalism of your vehicle
Correct answer: Your own medical expenses and lost wages regardless of fault
PIP pays for your medical bills, lost wages, and related costs after an accident without requiring you to prove the other driver was at fault.
Question 2: How does raising your deductible from $500 to $1,000 generally affect your car insurance premium?
- The premium increases because you are taking more risk
- The premium decreases because you are sharing more of the risk (Correct answer)
- The premium stays the same; deductibles don't affect premiums
- The premium increases because the insurer pays less per claim
Correct answer: The premium decreases because you are sharing more of the risk
A higher deductible means you pay more out of pocket per claim, which reduces the insurer's exposure and lowers your premium.
Question 3: Which practice is considered 'insurance fraud' in the context of car insurance?
- Shopping multiple insurers for a better rate
- Filing a claim for pre-existing damage not related to the covered accident (Correct answer)
- Increasing your deductible to lower premiums
- Dropping comprehensive coverage on an older vehicle
Correct answer: Filing a claim for pre-existing damage not related to the covered accident
Claiming pre-existing damage under a new incident is misrepresentation, which constitutes insurance fraud and is illegal.
Question 4: What does 'SR-22' refer to in car insurance?
- A high-performance vehicle classification for rating purposes
- A certificate of financial responsibility filed by an insurer to confirm minimum liability coverage (Correct answer)
- A federal standard for minimum car insurance requirements
- A discount program for drivers with perfect records
Correct answer: A certificate of financial responsibility filed by an insurer to confirm minimum liability coverage
An SR-22 is a form your insurer files with the state to prove you carry the required liability coverage, usually ordered after serious violations.
Question 5: In a 'fault' (tort) state, who is generally responsible for paying damages after a car accident?
- Each driver pays their own damages regardless of fault
- The driver determined to be at fault and their insurer (Correct answer)
- The state insurance fund covers all damages
- Both drivers split costs equally
Correct answer: The driver determined to be at fault and their insurer
In fault states, the at-fault driver's liability insurance pays for the other party's injuries and property damage.
Question 6: What is the main difference between 'agreed value' and 'stated value' in classic car insurance?
- Agreed value pays the full insured amount with no depreciation; stated value may pay less (Correct answer)
- Stated value pays more than agreed value in a total loss
- Agreed value applies only to liability; stated value covers physical damage
- There is no practical difference between the two terms
Correct answer: Agreed value pays the full insured amount with no depreciation; stated value may pay less
Agreed value policies pay the full amount both parties agreed to at policy inception; stated value allows the insurer to pay the lesser of stated value or ACV.
Question 7: Which of the following best describes 'underinsured motorist coverage' (UIM)?
- Coverage for drivers who forgot to renew their policy
- Coverage that pays when the at-fault driver's limits are too low to cover your full damages (Correct answer)
- Coverage for your own vehicle when you don't have collision
- Protection against claims from drivers who are underinsured for property damage only
Correct answer: Coverage that pays when the at-fault driver's limits are too low to cover your full damages
UIM kicks in when the at-fault driver carries liability insurance but not enough to fully compensate you for your injuries or damages.
Insurance Car Insurance 5
What does 'personal injury protection' (PIP) cover in a no-fault state?