Analysis and Evaluation of Risk Exposure - Personal Vehicle Insurance and Risks

The personal auto policy (PAP) can be written on eligible vehicles owned and leased by an individual or by a husband or wife residing in the same household. A vehicle rented to others for public use is not eligible and must be insured under a commercial policy.

Most vehicles such as cars, mini-vans, and sport utility vehicles are eligible for a personal auto policy. If vans, trucks, or other types of large vehicles are used for transportation or delivery of good and materials they typically are disqualified for a personal auto policy.

The risk exposures that must be considered when evaluating a PAP include the following:

  • Damage done to someone else's body or property
  • Medical expenses involved
  • Repair of your own vehicle in an accident
  • Accidents involving uninsured motorists
  • Temporary insurance on rental cars used while on vacation
  • Rental car reimbursement for an accident or longer term service issues

Practice Question:
Which of the following vehicles would be covered under Kevin's personal auto policy?
I. A pickup truck that he uses in his business for deliveries
II. A new car that was purchased last week
III. His son's car listed on a separate insurance policy
IV. A car rented by Kevin for the family vacation

A. I and II only
B. II and III only
C. III and IV only
D. II and IV only

Answer: D
Trucks used for business delivery are insured under commercial vehicle policies. Since Kevin's son has a separate insurance policy, he would not be covered under Kevin's personal auto policy. Risk Exposure from Liability


Related Articles
  1. Insurance

    How Car Insurance Companies Value Cars

    Learn the methodology used by car insurance companies to value cars, and understand why the amount they give you may not cover the cost of a similar vehicle.
  2. Professionals

    Umbrella Liability Insurance

    Umbrella Liability Insurance
  3. Insurance

    What Happens If You Lie on a Car Insurance Application

    The majority lies to save on premiums – but consequences can be severe for not owning up to things like tickets, accidents and how much you drive your car.
  4. Home & Auto

    Used Car Shopping: How To Avoid A Lemon

    Being prepared before buying will save you thousands in the long run.
  5. Insurance

    Millennials Guide: Picking the Right Car Insurance

    Millennials fall into the category of high car-insurance rates. Check out some of the ways to save money, like owning an older car or leasing a vehicle.
  6. Home & Auto

    Wait on Buying a Pickup (F, GMC)

    Used car prices are dropping everywhere. But if you're in the market for a pickup truck, a good bargain is less of a guarantee – thanks to strong demand.
  7. Professionals

    Homeowner Endorsements and Auto Insurance

    Homeowner Endorsements and Auto Insurance
  8. Professionals

    Practice Questions 10 - 13

    Practice Questions 10 - 13
  9. Professionals

    Business Insurance

    Business Insurance
  10. Personal Finance

    The Complete Guide To Buying A Used Car: Introduction

    When it comes to buying a new car, someone else's trade-in could very well be your next treasure. Right now, there's a huge demand for used cars in America's auto market. Every day, thousands ...
RELATED TERMS
  1. Business Automobile Policy - BAP

    An insurance policy that covers a company's use of cars, trucks, ...
  2. Auto Insurance

    A policy purchased by vehicle owners to mitigate costs associated ...
  3. Gap Insurance

    A type of auto insurance that car owners can buy to protect themselves ...
  4. Class 1 Insurance

    Insurance that covers an individual occupying an owned vehicle, ...
  5. Class 2 Insurance

    Insurance that covers individuals that are not specifically named ...
  6. Business Auto Coverage Form

    A form that insurers provide to business owners when creating ...
RELATED FAQS
  1. What types of companies are in the automotive sector besides auto manufacturers?

    Explore the relationships between automobile manufacturers and the numerous other types of companies that work in the automotive ... Read Answer >>
  2. When does it make sense to buy personal liability insurance?

    Protecting yourself from lawsuits is important to the financial well-being of you and your family. Is personal liability ... Read Answer >>
  3. Which of the following statements is (are) true with respect to setting the proper ...

    The correct answer is: d) Choice II is incorrect because the longer the investment horizon, the less emphasis must be placed ... Read Answer >>
  4. Which of the following are not types of open-end management investment companies ...

    The correct answer is d) Hedge funds are extremely aggressive entities that engage in margin and short-selling.  They are ... Read Answer >>
  5. Does renters insurance cover car theft?

    Learn how the theft of a vehicle is not covered under a renters insurance policy but any personal property stolen from a ... Read Answer >>
  6. Under the Telephone Consumer Act of 1991, a telemarketer must provide which of the ...

    The correct answer is d. All the choices except II are specific requirements of the Act. In addition, the law places time-of-day ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center