AFIP Insurance Product Knowledge 5 — Questions and Answers
Question 1: A customer's VSC requires repairs be authorized before work begins. The repair shop starts work without getting authorization. What is the most likely outcome?
- The VSC administrator will still pay the claim since the repair was necessary
- The claim may be denied because prior authorization is a condition of coverage (Correct answer)
- The customer can appeal to the state insurance commissioner for full payment
- The dealer is required to pay the claim from their reserve account
Correct answer: The claim may be denied because prior authorization is a condition of coverage
Prior authorization is typically a contractual requirement, and failure to obtain it before repairs begin can result in full or partial claim denial.
Question 2: Which statement about 'disappearing deductibles' on a VSC is accurate?
- The deductible increases with each claim filed until a maximum is reached
- The deductible amount decreases or is waived when the customer returns to the selling dealer for repairs (Correct answer)
- Disappearing deductibles apply only to powertrain claims, not electrical claims
- The deductible is waived automatically after 12 months of continuous coverage
Correct answer: The deductible amount decreases or is waived when the customer returns to the selling dealer for repairs
Disappearing (or reduced) deductibles incentivize customers to return to the selling dealer for warranty repairs by waiving or reducing the deductible when repairs are done in-house.
Question 3: An F&I manager sells a Key Replacement product. Which scenario would this product most likely cover?
- Locksmith fees when the customer locks keys inside the vehicle
- The cost to replace and reprogram a lost or stolen proximity key fob (Correct answer)
- Damage to the ignition cylinder caused by a broken key
- Replacement of a standard key cut at a hardware store
Correct answer: The cost to replace and reprogram a lost or stolen proximity key fob
Key Replacement products are designed to cover the high cost of replacing and programming modern transponder or proximity key fobs, which can cost hundreds of dollars at a dealership.
Question 4: Under a typical VSC, which of the following components would most likely be classified as a 'consequential damage' scenario?
- A water pump fails due to normal wear, requiring replacement
- A failed oil pump causes internal engine damage that would not have occurred otherwise (Correct answer)
- The battery dies and needs replacement after 4 years of use
- Brake pads wear down and need replacement at 40,000 miles
Correct answer: A failed oil pump causes internal engine damage that would not have occurred otherwise
Consequential damage occurs when a covered component's failure causes damage to another component; a failed oil pump leading to engine damage is a classic example.
Question 5: What does the term 'penetration rate' mean in an F&I context?
- The percentage of vehicle deals on which a specific F&I product is sold (Correct answer)
- The profit margin the dealer earns on each F&I product sold
- The number of F&I products sold per finance manager per month
- The rate at which customers finance vehicles rather than paying cash
Correct answer: The percentage of vehicle deals on which a specific F&I product is sold
Penetration rate measures how often a particular product is sold relative to total vehicle deals, expressed as a percentage.
Question 6: A Windshield Protection product is presented to a customer. Which damage scenario is MOST likely covered?
- A crack originating from the edge of the windshield caused by thermal stress
- A chip caused by road debris that can be repaired without full windshield replacement (Correct answer)
- A shattered windshield from a collision covered under the customer's comp/collision policy
- Scratches on the glass caused by worn wiper blades
Correct answer: A chip caused by road debris that can be repaired without full windshield replacement
Windshield protection products typically cover road hazard chips and cracks that can be repaired using resin injection, and in some cases cover full replacement if repair is not possible.
Question 7: A customer asks why their VSC claim was reduced from the repair shop's invoice amount. The administrator paid based on 'book time' rather than actual hours. What does this mean?
- The administrator paid only for parts listed in the manufacturer's parts catalog
- The administrator reimbursed labor based on a standardized time guide (e.g., Alldata, Mitchell) rather than the actual hours the technician spent (Correct answer)
- The claim was prorated based on the remaining contract term
- The administrator applied the deductible twice due to multiple components failing
Correct answer: The administrator reimbursed labor based on a standardized time guide (e.g., Alldata, Mitchell) rather than the actual hours the technician spent
VSC administrators typically pay labor reimbursement based on industry-standard time guides, which may differ from the actual time a shop records, potentially leaving a gap the customer must cover.
AFIP Insurance Product Knowledge 5
A customer's VSC requires repairs be authorized before work begins.
The repair shop starts work without getting authorization.
What is the most likely outcome?