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Encyclopedia > Vehicle insurance
An accident resulting in damage to a car.
An accident resulting in damage to a car.

Vehicle insurance (or auto insurance, car insurance, motor insurance) is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents. Image File history File links Broom_icon. ... A car accident in Yate, near Bristol, England, in July 2004. ... A car accident in Yate, near Bristol, England, in July 2004. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... “Car” and “Cars” redirect here. ... For other uses, see Truck (disambiguation). ... A vehicular collision in Yate, near Bristol, England, in July 2004. ...

Contents

Coverage levels

Insurance can cover some or all of the following items:

  1. The insured party
  2. The insured vehicle
  3. Third parties

Different policies specify the circumstances under which each item is covered. For example, a vehicle can be insured against theft, fire damage, or accident damage independently.


Excess

An excess payment, also known as a deductible, is the fixed contribution you must pay each time your car is repaired through your car insurance policy. Normally the payment is made directly to the accident repair garage when you collect the car. If your car is declared to be a write off, your insurance company will deduct the excess agreed on the policy from the settlement payment it makes to you. Look up Deductible in Wiktionary, the free dictionary. ...


If the accident was the other driver's fault, and this is accepted by the third party's insurer, you'll be able to reclaim your excess payment from the other person's insurance company. If the other driver is uninsured, a policy's minimum limits include coverage for the uninsured/underinsured motorist(s) at fault.


Compulsory Excess

A compulsory excess is the minimum excess payment your insurer will accept on your insurance policy. Minimum excesses do vary according to your personal details and driving record and by insurance company.


Voluntary Excess

In order to reduce your insurance premium, you may offer to pay a higher excess than the compulsory excess demanded by your insurance company. Your voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer is able to offer you a significantly lower premium.


Public policy

In many countries it is compulsory to purchase auto insurance before driving on public roads. In the United States, penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Usually the minimum required by law is third party insurance 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 $700 deductible) (such as a collision damage waiver) as part of its basic insurance policy. In South Australia Third Party Personal insurance from the State Government Insurance Corporation (SGIC) is included in the license registration fee. South Africa allocates a percentage of the money from petrol into the Road Accidents Fund, which goes towards compensating third parties in accidents.[1] Most countries relate insurance to both the car and the driver, however the degree of each varies greatly. This article is about the Canadian province. ... SGI Head Office in downtown Regina, Saskatchewan, Canada Created in 1945, Saskatchewan Government Insurance (SGI) is a provincial Crown corporation that has evolved over the years into two distinct operations. ... Look up Deductible in Wiktionary, the free dictionary. ... There are very few or no other articles that link to this one. ... Capital Adelaide Government Constitutional monarchy Governor Marjorie Jackson-Nelson Premier Mike Rann (ALP) Federal representation  - House seats 11  - Senate seats 12 Gross State Product (2004-05)  - Product ($m)  $59,819 (5th)  - Product per capita  $38,838/person (7th) Population (End of September 2006)  - Population  1,558,200 (5th)  - Density  1. ... SGIC is an insurance brand of Insurance Australia Group trading in South Australia. ...


In the United States, auto insurance is compulsory in most states, though enforcement of the requirement varies from state to state. The state of New Hampshire, for example, does not require motorists to carry liability insurance, while in Virginia residents must pay the state a $500 annual fee per vehicle if they choose not to buy liability insurance.[2] Official language(s) English Capital Concord Largest city Manchester Area  Ranked 46th  - Total 9,350 sq mi (24,217 km²)  - Width 68 miles (110 km)  - Length 190 miles (305 km)  - % water 4. ... This article is about the U.S. state. ...


Related research

A 1994 study by Jeremy Jackson and Roger Blackman[3] showed, consistent with the risk homeostasis theory, that increased accident cost caused large and significant reductions in accident frequency. Risk homeostasis is a psychological theory developed by Gerald J.S. Wilde, a professor emeritus of psychology at Queens University, Kingston, Ontario, Canada. ...


Basis of premium charges

See main article auto insurance risk selection Auto insurance risk selection is the process by which vehicle insurers determine whether or not to insure an individual and what insurance premium to charge. ...


Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.


When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims.[4] Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).[5][6] Damage from Hurricane Katrina. ... A claim is a legal action to obtain money, property or the enforcement of a right protected by law against another party. ... Look up Deductible in Wiktionary, the free dictionary. ... The effects of ageing on a human face Elderly woman Ageing or aging is the process of systems deterioration with time. ... Gender in common usage refers to the sexual distinction between male and female. ...


Gender

Men average more miles driven per year than women do, and have a proportionally higher accident involvement at all ages. Insurance companies cite women's lower accident involvement in keeping the youth surcharge lower for young women drivers than for their male counterparts but adult rates are generally unisex. Reference to the lower rate for young women as "the women's discount" has caused confusion that was evident in news reports on a recently defeated EC proposal to make it illegal to consider gender in assessing insurance premiums.[7] Ending the discount would have made no difference to most women's premiums.


Age

Teenage drivers who have no driving record will have higher car insurance premiums. However young drivers are often offered discounts if they undertake further driver training on recognised courses, such as the Pass Plus scheme in the UK. In the U.S. many insurers offer a good grade discount to students with a good academic record and resident student discounts to those who live away from home. Generally insurance premiums tend to become lower at the age of 25. Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this age group. The Pass Plus logo Pass Plus is a scheme run in the United Kingdom aimed at young drivers who have just passed the standard driving test. ...


Distance

Some car insurance plans do not differentiate in regard to how much the car is used. However, methods of differentiation would include:


Reasonable estimation

Several car insurance plans rely on a reasonable estimation of the average annual distance expected to be driven which is provided by the insured. This discount benefits drivers who drive their cars infrequently but has no actuarial value since it is unverified.


Odometer-based systems

Cents Per Mile Now[8](1986) advocates classified odometer-mile rates. After the company's risk factors have been applied and the customer has accepted the per-mile rate offered, customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline. Insurance automatically ends when the odometer limit (recorded on the car’s insurance ID card) is reached unless more miles are bought. Customers keep track of miles on their own odometer to know when to buy more. The company does no after-the-fact billing of the customer, and the customer doesn't have to estimate a "future annual mileage" figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily verify that the insurance is current by comparing the figure on the insurance card to that on the odometer.


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. However, as the Cents Per Mile Now website points out: "As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance risky and uneconomical. For example, in order to steal 20,000 miles of continuous protection while paying for only the 2,000 miles from 35,000 miles to 37,000 miles on the odometer, the resetting would have to be done at least nine times to keep the odometer reading within the narrow 2,000-mile covered range. There are also powerful legal deterrents to this way of stealing insurance protection. Odometers have always served as the measuring device for resale value, rental and leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or reimbursements for business or government travel. Odometer tampering—detected during claim processing—voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail."


Under the cents-per-mile system, rewards for driving less are delivered automatically without need for administratively cumbersome and costly technology. Uniform per-mile exposure measurement for the first time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and preventing today's windfalls to insurers when decreased driving activity lowers costs but not premiums.


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.[9] Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns.[10] Year 1998 (MCMXCVIII) was a common year starting on Thursday (link will display full 1998 Gregorian calendar). ... The Progressive Corporation (PGR), Progressive Casualty Insurance Company, through its subsidiaries, provides personal automobile insurance, and other specialty property-casualty insurance and related services in the United States. ... Official language(s) No official language See languages of Texas Capital Austin Largest city Houston Largest metro area Dallas–Fort Worth–Arlington Area  Ranked 2nd  - Total 261,797 sq mi (678,051 km²)  - Width 773 miles (1,244 km)  - Length 790 miles (1,270 km)  - % water 2. ... GPS redirects here. ...


In 1996, Progressive filed for and obtained a US patent (US patent 5,797134) on their process. Progressive has also filed corresponding patent applications in Europe and Japan. UK auto insurer, Norwich Union, has obtained an exclusive license to Progressive's European patent application. They have recently completed a successful pilot test of the technology and it is now available commercially under the tradename "Pay As You Drive™"[11] Norwich Union is an insurance company in the UK. It is the biggest life-insurer in the UK, and has a strong position in motor insurance. ...


Recent theoretical economic research on the social welfare effects of Progressive's telematics technology business process patents have questioned whether the business process patents are Pareto efficient for society. Premliminary results suggest that they are not, but more work is needed. [12] [13] Pareto efficiency, or Pareto optimality, is a central concept in game theory with broad applications in economics, engineering and the social sciences. ...


OBDII-based system

In 2004, Progressive 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(OBD-II) port, which exists in all cars built after 1996. The discount is forfeited if the device is disconnected for a significant amount of time.[14] Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... The current version of the article or section reads like an advertisement. ... OBD-II (OnBoard Diagnostics version 2) is a common hardware diagnostics interface that is present on all cars sold in the United States after 1996. ... Year 1996 (MCMXCVI) was a leap year starting on Monday (link will display full 1996 Gregorian calendar). ...


Auto Insurance in the United States

Coverage Available

The consumer may be protected with different coverage types depending on what coverage the insured purchases.


In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured’s vehicle, provided they do not live at the same address as the policy holder and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy. Thus it is necessary for example, when a family member comes of driving age they must be added on to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident.


Generally, liability coverage does extend when you rent a car. Comprehensive policies ("full coverage") usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured’s vehicle. This coverage may not apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle. Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.[15] Visa is a brand of credit card and debit card operated by the Visa International Service Association of San Francisco, California, USA, an economic joint venture of 21,000 financial institutions that issue and market Visa products. ... MasterCard Worldwide (NYSE: MA) is a multinational corporation based in Purchase, NY in the United States. ...


Liability

Liability coverage provides a fixed dollar amount of coverage for damages that an insured becomes legally liable to pay due to an accident or other negligence. For example, if an insured drives into a telephone pole and damages the pole, liability coverage pays for the damage to the pole. In this example, the insured also may become liable for other expenses related to damaging the telephone pole, such as loss of service claims (by the telephone company). In the most general sense, a liability is anything that is a hindrance, or puts individuals at a disadvantage. ...


Liability coverage is available either as a combined single limit policy or as a split limit policy:


Combined Single Limit

A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured with a combine single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.


Split Limits

A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.


Note that bodily injury liability coverage is also usually split as well into a maximum payment per person and a maximum payment per accident.


Collision

Collision coverage provides coverage for an insured's vehicle that is involved in an accident, subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable. Collision coverage is optional. Collision Damage Waiver (CDW) is the term used by rental car companies for collision coverage. For other uses, see Collision (disambiguation). ... Look up Deductible in Wiktionary, the free dictionary. ... There are very few or no other articles that link to this one. ...


Comprehensive

Comprehensive (a.k.a. - Other Than Collision) coverage provides coverage, subject to a deductible, for an insured's vehicle that is damaged by incidents that are not considered Collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are just some types of Comprehensive losses. Used as a noun, comprehensive may be short for: Comprehensive layout Comprehensive school Comprehensive System This is a disambiguation page — a navigational aid which lists pages that might otherwise share the same title. ...


Uninsured/Underinsured Coverage

Uninsured/Underinsured coverage, also known as UM/UIM, provides coverage if another at-fault party either does not have insurance, or does not have enough insurance. In effect, your insurance company acts as at fault party's insurance company.


In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws.


Loss of Use

Loss of Use coverage, also known as rental coverage, provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss.


Loan/Lease Payoff

Loan/Lease Payoff coverage, also known as GAP coverage or GAP insurance,[16][17] was established in the early 1980s to provide protection to consumers based upon buying and market trends.


Due to the sharp decline in value immediately following purchase, there is generally a period in which the amount owed on the car loan exceeds the value of the vehicle, which is called "upside-down" or negative equity. Thus, if the vehicle is damaged beyond economical repair at this point, the owner will still owe potentially thousands of dollars on the loan. The escalating price of cars, longer-term auto loans, and the increasing popularity of leasing gave birth to GAP protection. GAP waivers provide protection for consumers when a "gap" exists between the actual value of their vehicle and the amount of money owed to the bank or leasing company. In many instances this insurance will also pay the deductible on the primary insurance policy. These policies are often offered at the auto dealership as a comparatively low cost add on that can be put into the car loan which provides coverage for the duration of the loan.


Consumers should be aware that a few states, including New York, require lenders of leased cars to include GAP insurance within the cost of the lease itself. This means that the monthly price quoted by the dealer must include GAP insurance, whether it is delineated or not. Nevertheless, unscrupulous dealers sometimes prey on unsuspecting individuals by offering them GAP insurance at an additional price, on top of the monthly payment, without mentioning the State's requirements.


In addition, some vendors and insurance companies offer what is called "Total Loss Coverage." This is similar to ordinary GAP insurance but differs in that instead of paying off the negative equity on a vehicle that is a total loss, the policy provides a certain amount, usually up to $5000, toward the purchase or lease of a new vehicle. Thus, to some extent the distinction makes no difference, i.e., in either case the owner receives a certain sum of money. However, in choosing which type of policy to purchase, the owner should consider whether, in case of a total loss, it is more advantageous for him or her to have the policy pay off the negative equity or provide a down payment on a new vehicle.


For example, assuming a total loss of a vehicle valued at $15,000, but on which the owner owes $20,000, the "gap" is $5000. If the owner has traditional GAP coverage, the "gap" will be wiped out and he or she may purchase or lease another vehicle or choose not to. If the owner has "Total Loss Coverage," he or she will have to personally cover the "gap" of $5000, and then receive $5000 toward the purchase or lease of a new vehicle, thereby either reducing monthly payments, in the case of financing or leasing, or the total purchase price in the case of outright purchasing. So the decision on which type of policy to purchase will, in most instances, be informed by whether the owner can pay off the negative equity in case of a total loss and/or whether he or she will definitively purchase a replacement vehicle.


Car Towing Insurance

Car Towing coverage is also known as Roadside Assistance coverage. Traditionally, automobile insurance companies have agreed to only pay for the cost of a tow that is related to an accident that is covered under the automobile policy of insurance. This had left a gap in coverage for tows that are related to mechanical breakdowns, flat tires and running out of gas. To fill that void, insurance companies started to offer the Car Towing coverage, which pays for non-accident related tows.


European Union and United Kingdom Laws regarding motor insurance

In 1930 the UK government introduced a law that required every person who used a vehicle on the road to have at least third party personal injury insurance. Today UK law is defined by the The Road Traffic Act which was last modified in 1991.


The Act requires all motorists to be insured against their liability for injuries to others (including passengers) and for damage to other persons' property resulting from use of a vehicle on a public road or in other public places. This is called Third Party Insurance. It is an offence to drive your car, or allow others to drive it, without at least Third Party insurance whilst on the public highway, on private land no such legislation applies.


The insurance certificate or cover note issued by the insurance company constitutes legal evidence that the vehicle specified on the document is indeed insured. The Law says that an authorised person, such as the police, may require a driver to produce an insurance certificate for inspection. If the driver cannot show the document immediately on request, then the driver will usually be issued a HORT/1 with seven days, as of midnight of the date of issue, to take a valid insurance certificate (and usually other driving documents as well) to a police station of the driver's choice. Failure to produce an insurance certificate is an offence.


Insurance is more expensive in Northern Ireland than in other parts of the UK. Northern Ireland (Irish: , Ulster Scots: Norlin Airlann) is a constituent country of the United Kingdom lying in the northeast of the island of Ireland, covering 5,459 square miles (14,139 km², about a sixth of the islands total area). ...


Motorists in the UK are required to display a Vehicle excise duty disc in their car when it is kept or driven on public roads. This helps to ensure that most people have adequate insurance on their vehicles because you are required to produce an insurance certificate when you purchase the disc. However it is a known practice for some people to purchase insurance to gain the certificate and then to cancel the insurance and gain a full refund within the statutory 14 day cooling off period. A UK vehicle licence (tax disc) In the United Kingdom, Vehicle Excise Duty (VED) (often known as road tax, although it is not hypothecated for spending on roads, and before 1936 as road fund licence) is an annual tax on the use of motor vehicles on the public roads. ...


The Motor Insurers Bureau compensates the victims of road accidents caused by uninsured and untraced motorists. It also operates the Motor Insurance Database, which contains details of every insured vehicle in the country. The Motor Insurers Bureau is a function of the British government, formed in 1946. ...


See also

Alcohol exclusion laws were passed in the 1940s in the United States to discourage people from drinking alcoholic beverages and to save insurance companies money from alcohol-related claims (Ensuring Solutions to Alcohol Problems, George Washington University Medical Center, 2005). ... A vehicle breakdown is a mechanical failure. ... Extended coverage is a term used in the insurance business. ... The Insurance Information and Enforcement System is a system used by many Department of Motor Vehicles agencies to track people who might be driving without automobile insurance. ... No fault insurance is a type of automobile insurance where an insured need only prove that they were injured in an automobile accident (either damage to persons or damage to property) to recover under the policy. ... An omnibus clause is a clause in a contract for motor insurance which extends coverage to all drivers operating the insured vehicle with the owners permission. ...

Notes

  1. ^ Petrol Structure (HTML). Department of Minerals and Energy, South Africa. Retrieved on 2006-05-11.
  2. ^ Virginia Insurance Requirements (HTML). Virginia Department of Motor Vehicles. Retrieved on 2007-11-15.
  3. ^ Jackson JSH, Blackman R (1994). "A driving-simulator test of Wilde's risk homeostasis theory". Journal of Applied Psychology.
  4. ^ McClenahan, Charles. Ratemaking (PDF). Casualty Actuarial Society. Retrieved on 2006-05-11.
  5. ^ What determines the price of my policy? (HTML). Insurance Information Institute. Retrieved on 2006-05-11.
  6. ^ How Are Auto Insurance Rates Calculated? (HTML). Countrywide Insurance Services. Retrieved on 2006-05-11.
  7. ^ "Women drivers' insurance threat" (HTML), BBC. Retrieved on 2006-09-05. 
  8. ^ Cents Per Mile Now (HTML). Retrieved on 2006-05-11.
  9. ^ Progressive's "pay-as-you-drive" auto insurance poised for wide rollout (HTML). insure.com. Retrieved on 2006-05-11.
  10. ^ Insurance program rewards drivers who drive less and slower (HTML). Aftermarket Business. Retrieved on 2006-05-11.
  11. ^ Pay As You Drive™ Insurance (HTML). Norwich Union. Retrieved on 2006-05-11.
  12. ^ Strauss and Hollis, 2007, Insurance Markets When Firms are Assymetrically Informed: A Note (HTML).
  13. ^ Hollis and Strauss, 2007, Privacy, Driving Data and Automobile Insurance: An Economic Analysis (HTML).
  14. ^ New technology provides detailed info on driving habits (HTML). Minnesota Public Radio®. Retrieved on 2006-05-11.
  15. ^ Auto Rental Collision Damage Waiver Program Personal (HTML). Visa USA. Retrieved on 2006-05-11.
  16. ^ Buying or Leasing a Car: What you should know (HTML). State of New York Banking Department. Retrieved on 2007-01-17.
  17. ^ GAP Insurance (HTML). Washington State Office of the Insurance Commissioner. Retrieved on 2007-01-16.

 
 

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