Illinois Casualty Insurance State Practice Exam

Physical Damage Coverage is defined as what type of coverage?

1. Liability coverage for third-party injuries

2. First party coverage that covers damage to the insured vehicle

3. Protection against theft and vandalism

4. An additional policy for increased liability coverage

The correct answer is: First party coverage that covers damage to the insured vehicle

Physical Damage Coverage is indeed categorized as first-party coverage that protects against damage to the insured vehicle. This type of coverage typically includes two main components: collision coverage, which pays for damage to the insured vehicle resulting from collisions with other vehicles or objects, and comprehensive coverage, which addresses damage from events other than a collision, such as theft, vandalism, fire, or natural disasters. The significance of classifying it as first-party coverage lies in the fact that it directly benefits the policyholder rather than providing protection against claims made by others, which is characteristic of liability coverage. Understanding the distinction between first-party and third-party coverage is crucial in insurance, as it informs policyholders about the protections available to them for their own property versus coverage for claims made by others for damages they may have caused.