AFIP Insurance Product Knowledge 4 — Questions and Answers
Question 1: A customer asks about 'agreed value' coverage for a collectible vehicle. Which statement is correct about agreed value policies?
- The insurer pays ACV at the time of loss, regardless of the agreed amount at policy inception
- The insurer and insured agree on the vehicle's value upfront and that amount is paid in full at total loss without depreciation (Correct answer)
- The agreed value is a cap; the insurer may still pay less based on market conditions
- Agreed value applies only to partial losses, not total losses
Correct answer: The insurer and insured agree on the vehicle's value upfront and that amount is paid in full at total loss without depreciation
With an agreed value policy, the insurer commits to paying the pre-agreed amount in a total loss scenario, eliminating depreciation disputes.
Question 2: A VSC administrator uses a 'direct-pay' authorization process. What does this mean for a repair facility?
- The customer pays the repair shop and then files for reimbursement from the administrator
- The administrator pays the repair facility directly after authorization, so the customer owes only their deductible (Correct answer)
- The lender pays the repair costs and adds them to the loan balance
- The dealer pays for repairs and is later reimbursed by the insurer
Correct answer: The administrator pays the repair facility directly after authorization, so the customer owes only their deductible
In a direct-pay arrangement, the VSC administrator pays the authorized repair amount directly to the repair shop, minimizing out-of-pocket expense for the customer.
Question 3: What is the main function of a Lease Wear & Tear protection product?
- To cover the lease buyout price if the customer decides to purchase the vehicle at lease end
- To pay charges assessed by the lessor at lease-end for damage beyond normal wear standards (Correct answer)
- To extend the lease term if the customer needs additional time to find a new vehicle
- To cover excess mileage charges if the customer drives over the contracted mileage allowance
Correct answer: To pay charges assessed by the lessor at lease-end for damage beyond normal wear standards
Lease Wear & Tear coverage pays the end-of-lease charges the lessor bills for damage exceeding their normal wear guidelines, such as scratches, dents, and interior damage.
Question 4: Under AFIP standards, which of the following represents a best practice when presenting F&I products to a customer?
- Present all products quickly to minimize the time customers spend in the F&I office
- Disclose the cost and benefit of each product clearly, allowing the customer to make an informed decision (Correct answer)
- Bundle products together to simplify the decision and increase penetration
- Avoid mentioning monthly payment impact until after the customer agrees to a product
Correct answer: Disclose the cost and benefit of each product clearly, allowing the customer to make an informed decision
AFIP emphasizes transparent, compliant product presentation where customers understand costs and benefits before making a purchase decision.
Question 5: A vehicle is stolen and not recovered. The customer has GAP coverage and a $1,000 deductible on their primary auto policy. How is the GAP claim typically calculated?
- GAP pays the full loan balance; the primary insurer's deductible is irrelevant
- GAP pays the difference between the ACV settlement from primary insurance and the loan balance, and may also cover the deductible up to a stated limit (Correct answer)
- GAP pays only if the theft occurs within the first 12 months of the loan
- GAP reimburses the deductible only; the primary insurer covers the rest of the loan
Correct answer: GAP pays the difference between the ACV settlement from primary insurance and the loan balance, and may also cover the deductible up to a stated limit
GAP covers the shortfall between the ACV payout and the loan balance, and many GAP products also include a deductible benefit up to a specified limit (commonly $1,000).
Question 6: Which VSC contract type places the dealer as the obligor responsible for paying covered repairs?
- Insured third-party administrator (TPA) program
- Dealer-obligor (retail reserve) program (Correct answer)
- Manufacturer-backed extended warranty
- Captive reinsurance program with a carrier fronting policy
Correct answer: Dealer-obligor (retail reserve) program
In a dealer-obligor program, the dealer is contractually responsible for paying claims, which exposes the dealer to financial risk if reserves are insufficient.
Question 7: A customer returns to the dealership to cancel a VSC 90 days after purchase. The contract states a $75 cancellation fee applies after 30 days. Who typically processes this cancellation?
- The state insurance commissioner's office
- The selling dealer, who submits the cancellation to the administrator or insurer for a refund calculation (Correct answer)
- The lienholder, since the VSC was financed into the loan
- The manufacturer, because VSCs are considered an extension of the factory warranty
Correct answer: The selling dealer, who submits the cancellation to the administrator or insurer for a refund calculation
The selling dealer initiates the cancellation request with the administrator or insurance company, which then calculates the prorated refund minus any applicable cancellation fee.
AFIP Insurance Product Knowledge 4
A customer asks about 'agreed value' coverage for a collectible vehicle.
Which statement is correct about agreed value policies?