The Emerson First National Bank is lending you money to buy a new car. The loan agreement will probably state that you must carry _______ insurance.
A. medical
*B. liability
C. no-fault
D. collision
B may be right, but I'm inclined to think it would be collision insurance.
Check your text.
To determine the answer to this question, we must understand the purpose of the loan agreement and what type of insurance is typically required when borrowing money to buy a new car.
When a bank lends you money to purchase a new car, they want to protect their investment in case of an accident or damage to the vehicle. Therefore, most loan agreements for car purchases will include a requirement for insurance coverage.
Here are the explanations for each option:
A. Medical insurance refers to coverage that pays for your medical expenses in the event of an accident or injury. While essential for your own well-being, it does not directly protect the bank's investment in the car.
B. Liability insurance, on the other hand, is designed to protect against financial loss if you are held responsible for an accident and cause injury or property damage to others. This type of insurance is commonly required in loan agreements because it provides coverage for potential claims against you.
C. No-fault insurance is a system in which your insurance company pays for your damages regardless of who is at fault in an accident. This type of insurance is not usually required in loan agreements because it focuses on covering your own damages rather than potential claims against you.
D. Collision insurance provides coverage for damages to your own vehicle in the event of an accident, regardless of fault. While this type of insurance is important for protecting your own interests, it does not directly address the bank's concern over potential liability claims.
Given the information above, the most appropriate answer to the question is B. liability insurance. This type of insurance provides coverage for potential claims against you, making it the most relevant to protect the bank's investment in the car.