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Encyclopedia > Automobile insurance

Auto insurance is insurance consumers can purchase for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of car accidents.

An insurance company may declare a vehicle totaled if it appears replacement would be cheaper than repair.

Coverage levels

By buying auto insurance, depending on the type of coverage purchased, the consumer may be protected against:

  • The cost of repairing the vehicle following an accident
  • The cost of purchasing a new vehicle if it is stolen or damaged beyond economic repair
  • Legal liability claims against the driver or owner of the vehicle following the vehicle causing damage or injury to a third party.

Liability insurance covers only the latter, while comprehensive insurance covers all three. Even comprehensive insurance, however, doesn't fully cover the risk associated with buying a new car. Due to the sharp decline in value immediately following purchase, there is generally a period in which the remaining car payments exceed the compensation the insurer will pay for a "totaled" vehicle.

Public policy

In many countries it is compulsory to have purchased auto insurance before driving on public roads. This is to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional _ one notable exception to this is in Saskatchewan, where SGI provides collision coverage (less a $700 deductible) as part of its basic insurance policy.

Pricing plans

Most car insurance plans charge a premium based on several risk factors that are likely to have an impact on the frequency of occurence or on the expected cost of future claims. The premium usually depends on the car characteristics, the coverage selected (deductible, limit, covered perils), the usage of the car (commute to work or not, annual distance driven), and the profile and driving history of the drivers (age, sex, marital status, trafic violations and accidents).

Distance risk factor

Flat rate

Several car insurance plans charge a flat rate regardless of how much the car is used.

Reasonable estimation

Several car insurance plans relies on a reasonable estimation of the average annual distance expected to be driven which is provided by the insured. This benefits drivers who drive their cars infrequently.

Odometer_based systems

Cents Per Mile Now (http://www.centspermilenow.org/) advocates a car insurance pricing scheme based on odometer readings. The policyholder would purchase insurance to cover a certain number of miles driven. The beginning and ending odometer readings would then be printed on the insurance card, so that in the event of a traffic stop, an officer could easily verify that the insurance is current.

Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later.

GPS-based system

In 1998, Progressive Insurance started a pilot program in Texas in which volunteers installed a GPS-based technology called Autograph in exchange for a discount. The device tracked their driving behavior and reported the results via cellular phone to the company[1] (http://info.insure.com/auto/progressive700.html). Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns [2] (http://www.aftermarketbusiness.com/aftermarketbusiness/article/articleDetail.jsp?id=124842).

OBDII-based system

In 2004, the company launched another pilot program to allow policyholders to earn a discount on their premiums by consenting to use its TripSense device. TripSense connects to a car's OnBoard Diagnostic(OBDII) port, which exists in all cars built after 1996. The discount is forfeited if the device is disconnected for a significant amount of time[3] (http://news.minnesota.publicradio.org/features/2004/08/23_scheckt_autochip/).

According to Progressive[4] (https://tripsense.progressive.com/about.aspx?Page=HowDeviceWorks), the TripSense device records:

  • Start time
  • End time
  • Miles driven
  • Duration
  • Number of aggressive braking events
  • Number of aggressive acceleration events
  • Speed at 10-second intervals
  • Time and date of each connection/disconnection to the OBDII port.


  • Texas Gives Green Light to Cents-Per-Mile Auto Insurance (http://www.now.org/nnt/summer-2002/cents.html), Michelle Keller, National Organization for Women.
  • Pay as You Drive Now (http://www.orcouncil.org/Pollution/PAYD.htm), Oregon Environmental Council, 2003.
  • Cents Per Mile Now (http://www.centspermilenow.org/), 2004.
  • Progressive's "pay-as-you-drive" auto insurance poised for wide rollout (http://info.insure.com/auto/progressive700.html), Joe Frey, Insure.com, July 18, 2000.
  • Insurance program rewards drivers who drive less and slower (http://www.aftermarketbusiness.com/aftermarketbusiness/article/articleDetail.jsp?id=124842), Chris Miller, Aftermarket Business, Sep. 24, 2004.
  • New technology provides detailed info on driving habits (http://news.minnesota.publicradio.org/features/2004/08/23_scheckt_autochip/), by Tom Scheck, Minnesota Public Radio, August 23, 2004.

Photo credit: car-accidents.com (http://www.car-accidents.com). Used with permission.

  Results from FactBites:
Automobile Insurance (6215 words)
Since the Department of Motor Vehicles (DMV) requires liability insurance in order to register and operate a vehicle, it is of great importance to purchase and to fully understand your automobile insurance policy.
Automobile insurance is simply a contract that helps pay for certain types of financial losses or obligations resulting from the use or ownership of an automobile.
Provides liability insurance when the party at fault does not have the state required minimum liability coverage, or the minimum liability coverage is insufficient to cover the injuries sustained in the accident.
The insurance carrier further argued that Fimpel's reliance on the Lucky and Ellis opinions was misplaced, as those opinions pertained to uninsured motorist coverage, which is a separate and distinct form of insurance from no-fault.
State Automobile also urged that under the terms of the insurance contract the policy was not a new policy but a continuation of the old.
It tacitly admits that the parties to an insurance contract have the right to make their own contract and that legal effect must be given to all provisions and language contained in an insurance contract that are not contrary to a statute or public policy.
  More results at FactBites »



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