Name ___________________________ Class Date _______________________________
Car Insurance Basics.
Driving without car insurance is illegal in almost all states. Insurance protects you, and others,
from financial ruin if you have an auto accident. In addition, it can help if your car is vandalized,
damaged by fire or stolen — depending on your policy.
The purpose of car insurance is to protect you from paying a lot of your money out of your
pocket after an automobile accident. Car insurance is also a social responsibility. This is because if you
can’t pay for the damage you cause in an accident then the other person has to pay. And that is not fair.
That's why all states (except New Hampshire) require drivers to have liability insurance.
When you buy auto insurance you are required to pay a premium. A premium is the amount of
money you pay every month to have the insurance policy. What you pay as a premium is affected by
different factors such as:
age –drivers under 25 have the highest rates and drivers between 50 and 65 have the
gender – males usually pay more than females.
location – rural drivers pay less than city drivers.
yearly mileage – less miles driven per year gives you a smaller premium.
type of car – sporty cars with bigger engines pay more.
marital status – married people pay less.
credit rating – poor credit makes your premiums go up.
A basic auto insurance policy contains six types of coverage. The coverage that is needed
depends upon the claim that is filed. A claim is when you tell the insurance company you were in an
accident and/or there is damage to your car and you want them to pay for it. Depending on where you
live, some coverage is required and some is optional. The first three are required in Pennsylvania.
The six types of coverage are:
1. Bodily injury liability.
2. Property damage liability.
3. Medical payments or Personal Injury Protection (PIP).
6. Uninsured/Underinsured motorists coverage (UM/UIM).
7. Extras, like roadside assistance.
Liability insurance. 2:27
Liability coverage limits (that's for the damage you do to others) are written as three numbers,
such as 20/40/10. That translates to $20,000 in bodily injury coverage per person, $40,000 in bodily
injury coverage per accident and $10,000 in property-damage coverage per accident.
States require certain levels of minimum liability insurance because it's coverage that pays for
damage you do to others — including bodily injury and property damage. It also pays for your legal
bills if you cause an accident.
Bodily-injury liability coverage applies to damages you cause to other people. It covers their
medical bills and lost wages. Property-damage liability coverage pays to repair or replace property
that you destroy. This includes other cars or property, such as fences. It can also pay for "pain and
suffering" damages if someone sues you after a car accident — but only up to your policy’s liability
But, you may need to pay more than your policy’s liability limits. If you cause $65,000 worth
of damage and have an insurance limit of $40,000, you're responsible for the remaining $25,000 and
could be sued for it. It is recommended you carry $100,000 of bodily injury protection per person and
$300,000 per accident. Other insurance industry experts also recommend buying a minimum of
$50,000 in property damage liability coverage.
Collision and comprehensive coverage 4:04
Collision coverage pays to repair your own vehicle in the event of an accident. Your car is
considered "totaled" when the repair costs are more than a certain amount of the car's value, such as 70
percent. At that point, the insurance company will tow away the car to the salvage yard and offer you
the actual cash value of your car. For example, if your car is worth $10,000 and damage to the car is
more than $7000, the insurance company will consider it totaled, junk it, and give you the value of the
car which is $10,000.
Collision & comprehensive coverage: Up to you.
Neither collision nor comprehensive coverage is required by any state.
However, your bank (if you are financing your car) may require that
you carry this coverage until you have paid for your car in full. After
your car is paid off, you have the option of dropping this coverage.
To keep your premium costs down when you buy collision coverage, you can raise your
deductible. The deductible is the amount of money you pay out of your pocket before the insurance
company will pay you for an accident claim. Collision coverage is generally sold with a deductible of
$250 to $1,000. The higher your deductible, the lower your premium. But remember you'll have to pay
that amount out of your pocket before coverage kicks in.
Comprehensive coverage pays for damage to your car that isn't due to car accidents. That
includes theft, fire, vandalism, natural disasters and collisions with animals (such as hitting a deer).
Another perk that may be covered under your comprehensive coverage is your windshield. In some
states, comprehensive coverage includes glass replacement with no deductible, but it varies from state
Medical payments, PIP and No-Fault. 5:58
Medical payments (called MedPay) coverage pays for the medical expenses suffered by you
and your passengers after an accident. You're also covered if you're driving someone else's car (with
their permission) or from injuries suffered if a car hits you. MedPay will pay no matter who caused the
accident, although if someone else is at fault your insurer may sue them, meaning it will seek payment
from the other person who caused the accident.
Personal Injury Protection (PIP) coverage pays for medical expenses and lost wages for you
and your passengers who are injured in an accident. It also covers funeral costs. PIP is required in 16
states and Puerto Rico. Do you need it? If you have good health insurance and disability insurance, you
can skip PIP or buy only the minimum amount if it's required.
Uninsured/underinsured motorist coverage. 6:56
Uninsured motorists (UM) coverage pays for your medical bills if an uninsured driver strikes
your car or if you're a victim of a hit-and-run. UM coverage is required by law in 20 states and the
District of Columbia. The states are: Connecticut, Illinois, Kansas, Maine, Maryland, Massachusetts,
Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oregon,
Rhode Island, South Carolina, South Dakota, Vermont, Virginia and West Virginia.
Underinsured motorists (UIM) coverage kicks in when someone causes an accident but doesn't
have enough insurance to cover all medical bills. In that case, the at-fault person's insurance pays out
to its maximum and then your UIM coverage pays for the remaining bills, up to your own limit.
The extras. 7:53
These may seem like little luxuries, especially when you're adding up your premium bill, but in the
event of an accident these additional coverages can save you a bundle.
Rental reimbursement coverage pays for a rental car when your vehicle is damaged or stolen.
Check for the per-day dollar limits and overall maximum to make sure you're getting a good
value for your premium dollar. See why rental reimbursement on your auto policy is a good
Towing and labor coverage pays for fees due to road breakdowns.
Gap coverage for a new vehicle pays the difference between the actual cash value of the vehicle
and the amount left on your car loan if your vehicle is totaled.
Managing Your Insurance Policy Costs. 8:36
There are several ways to find the least expensive auto policies. You can get your car insurance
quotes online or from a local independent insurance agent. Both ways let you get quotes from several
insurance companies so you can compare prices. You also want to make sure that your auto insurance
company will have great customer service and make the claim process easy and fair in the event of an
accident. For that, the recommendations of friends and family, especially those who have made claims,
can be invaluable.
There are many discounts that can be used to reduce your premium. They include:
multiple policy discounts (when you buy more than one insurance policy from the same
good student discount.
good driver discount (not having any accidents).
anti-theft device discount for things like car alarms and hood locks.
safety feature discount for things like air bags and motorized seat belts.
anti-lock brake discounts.
taking a driving course discount .
senior citizen discount for when you are over 65 and retired.
Remember that not all insurance companies offer the same discounts. Shop around to get the
best price and the most discounts that you can. It is never wise to pay more for your insurance than is
"Car Insurance Basics." Insure.com. Quinstreet, Inc., 07 Jul 2010. Web. 28 Sep 2010. <http://www.insure.com/car-insurance/basics.html>.
Name _____________________________ Class Period ______ Date ___________________
Car Insurance Knowledge Check (30 points)
DIRECTIONS: After reading about car insurance, answer the following questions.
DIRECTIONS: Place the letter of the correct answer on the line in front of the question.
A. bodily-injury liability coverage H. personal injury protection coverage
B. claim I. premium
C. collision coverage J. property-damage coverage
D. comprehensive coverage K. rental reimbursement coverage
E. deductible L. towing/labor coverage
F. gap coverage M. underinsured motorist coverage
G. medical payments coverage N. uninsured motorist coverage
_____ 1. pays for a rental car if your car is damaged or stolen
_____ 2. pays for any bills that aren’t covered by the other person’s insurance because their
policy limits are too low
_____ 3. pays for damages to your car from non-accident causes
_____ 4. the amount of money you pay every month to own car insurance
_____ 5. pays for damages to your car in an accident
_____ 6. pays for fees due to road breakdowns
_____ 7. pays for medical expenses, lost wages, and funeral costs for you and your passengers
_____ 8. pays for the damage you do to other people
_____ 9. asking the insurance company for money when you have an accident and/or damage to
_____ 10. pays for the damage you do to other people’s possessions
_____ 11. the amount of money you pay out of your pocket before the insurance company will pay
any costs of the accident
_____ 12. pays for the medical expenses for you and your passengers
_____ 13. pays for your medical bills if you are in an accident caused by someone who has no
_____ 14. pays off your car loan if your car is totaled and the insurance company doesn’t give you
enough money to pay off the loan
Short Answer Questions
1. What is the purpose of having car insurance? ____________________________________________
2. What are the 3 types of coverages are required in Pennsylvania? ____________________________
3. Your automobile insurance policy has liability coverage limits that are written as 100/300/50.
What does this mean? ________________________________________________________________
4. Compare and contrast bodily-injury liability coverage and property-damage coverage.
5. You are not required to have comprehensive and collision coverages in any state. Name one
situation where it may be required. ______________________________________________________
6. What is the relationship between premium and deductible? _________________________________
7. Name three types of car damage that would be covered by comprehensive coverage. ____________
8. True or False. Uninsured motorist coverage is required in Pennsylvania.
9. What type of coverage will you need if you are a victim of a hit-and-run accident? ______________
10. Why is shopping around for an insurance policy a good idea? ______________________________
DIRECTIONS: Write the name of the insurance coverage(s) that would be needed for each situation.
There may be more than one.
Scenario 1: You have chosen to drive a 2009 BMW Convertible, however it is not fully paid off. You
are parked in the student parking lot, while a thunderstorm rolled through town. Lightning struck a tree
and fell on your convertible.
Scenario 2: You pull up to a traffic light in your parents' 1999 minivan front of school. The light turns
green, and before you can accelerate, you are rear ended.
Scenario 3: You are driving in the winter on the way to school with a friend in the car. You hit an ice
patch and the car does a 180, facing the opposite direction. A car hits you head on going 40 mph. Your
passenger is seriously injured.
Scenario 4: You are getting ready for school. You walk outside to get in your car... and it's stolen!
Scenario 5: You are at a school baseball game. A homerun is hit, and so is car. There is a big baseball
dent on the hood of your car. You went to move your car, and it will not start.