CAIA Policy Coverage and Exclusions 3 — Questions and Answers
Question 1: A vehicle is declared a total loss. The insured still owes more on their auto loan than the vehicle's ACV. Which optional coverage bridges this gap?
- Rental reimbursement coverage
- GAP (Guaranteed Asset Protection) coverage (Correct answer)
- Extended liability endorsement
- Uninsured motorist property damage
Correct answer: GAP (Guaranteed Asset Protection) coverage
GAP coverage pays the difference between the vehicle's ACV settlement and the remaining loan or lease balance.
Question 2: Which exclusion prevents a standard auto policy from covering a vehicle used in a street race sanctioned by no official body?
- Intentional acts exclusion
- Racing or speed contest exclusion (Correct answer)
- Business use exclusion
- Government action exclusion
Correct answer: Racing or speed contest exclusion
Auto policies universally exclude losses occurring while the vehicle is used in racing or speed contests.
Question 3: A family member not listed on the policy regularly drives the insured vehicle. Under the PAP, are they covered?
- No, only listed drivers have coverage
- Yes, resident family members are typically covered as 'insureds' (Correct answer)
- Only if they have their own separate policy
- Only for liability, not physical damage
Correct answer: Yes, resident family members are typically covered as 'insureds'
The PAP's definition of 'insured' includes family members residing in the same household who use a covered auto.
Question 4: Which statement best describes the 'deductible' in auto physical damage coverage?
- The maximum amount the insurer will pay
- The amount the insured pays out-of-pocket before insurance pays (Correct answer)
- A penalty applied to at-fault claims
- The premium discount for accident-free driving
Correct answer: The amount the insured pays out-of-pocket before insurance pays
The deductible is the insured's portion of a covered loss paid before the insurer contributes.
Question 5: An insured's custom stereo worth $2,000 is stolen from the vehicle. The standard auto policy pays only $200. Why?
- Theft of audio equipment is fully excluded
- Non-factory installed equipment often has a sub-limit under standard policies (Correct answer)
- Comprehensive does not cover theft at all
- The deductible eliminated the payment
Correct answer: Non-factory installed equipment often has a sub-limit under standard policies
Standard PAPs typically limit coverage for custom or aftermarket equipment to a specified sub-limit unless a special endorsement is added.
Question 6: Under Medical Payments (MedPay) coverage, who is typically eligible for benefits?
- Only the named insured while driving
- Any occupant of the covered vehicle, regardless of fault (Correct answer)
- Third-party drivers injured by the insured
- Pedestrians struck by the insured vehicle
Correct answer: Any occupant of the covered vehicle, regardless of fault
MedPay covers medical expenses for the named insured and any occupants of the covered vehicle, regardless of who caused the accident.
Question 7: A claimant seeks damages for a car accident occurring five years ago. The insured's policy has long since expired. Can the insurer deny coverage?
- No, insurers must cover all past accidents indefinitely
- Yes, occurrence policies only cover losses during the active policy period (Correct answer)
- No, claims must be honored if premiums were paid at any point
- Yes, but only if a statute of limitations has passed
Correct answer: Yes, occurrence policies only cover losses during the active policy period
Auto liability policies are occurrence-based, covering only accidents that happen during the active policy period.
CAIA Policy Coverage and Exclusions 3
A vehicle is declared a total loss.
The insured still owes more on their auto loan than the vehicle's ACV.
Which optional coverage bridges this gap?