GAP GAP Product Features & Pricing 1 — Questions and Answers
Question 1: What does GAP insurance primarily cover in the event of a total loss?
- The difference between the vehicle's ACV and the outstanding loan balance (Correct answer)
- The full replacement cost of a new vehicle
- Only the deductible on the primary auto policy
- Mechanical repairs after an accident
Correct answer: The difference between the vehicle's ACV and the outstanding loan balance
GAP insurance covers the 'gap' between a vehicle's actual cash value (ACV) paid by the primary insurer and the remaining loan or lease balance.
Question 2: Which of the following is typically NOT covered by a standard GAP product?
- Overdue loan payments carried over into the balance (Correct answer)
- The difference between ACV and loan payoff
- The primary insurer's total-loss settlement
- Negative equity rolled from a prior vehicle
Correct answer: Overdue loan payments carried over into the balance
Standard GAP products exclude past-due payments that were rolled into the loan, as these represent pre-existing financial obligations unrelated to the loss event.
Question 3: A dealer-sold GAP product is most commonly structured as a:
- Single-premium addendum to the finance contract (Correct answer)
- Monthly recurring insurance premium
- Separate deductible reimbursement policy
- Manufacturer warranty extension
Correct answer: Single-premium addendum to the finance contract
Dealer-sold GAP is typically offered as a single-premium product added to the vehicle finance contract and financed into the loan.
Question 4: What is the primary pricing driver for GAP products offered through franchised dealerships?
- The loan-to-value (LTV) ratio of the financed vehicle (Correct answer)
- The borrower's credit score
- The vehicle's color and trim level
- The primary insurer's A.M. Best rating
Correct answer: The loan-to-value (LTV) ratio of the financed vehicle
LTV ratio is the key pricing driver because a higher LTV means greater potential exposure between the ACV and the outstanding balance.
Question 5: Which GAP product feature allows the insured to receive a credit toward a replacement vehicle purchase?
- Replacement vehicle credit or new-vehicle allowance rider (Correct answer)
- Total loss waiver endorsement
- Deductible reimbursement clause
- Diminished value rider
Correct answer: Replacement vehicle credit or new-vehicle allowance rider
A replacement vehicle credit rider provides an additional benefit—typically $1,000–$1,500—toward the purchase of a replacement vehicle after a total loss.
Question 6: A GAP product that also reimburses the borrower's primary insurance deductible (up to $1,000) is known as a:
- GAP Plus or GAP with deductible reimbursement (Correct answer)
- Extended warranty with GAP
- Mechanical breakdown insurance
- Comprehensive loss waiver
Correct answer: GAP Plus or GAP with deductible reimbursement
GAP Plus products bundle standard GAP coverage with a deductible reimbursement benefit, reducing the borrower's out-of-pocket costs after a total loss.
GAP GAP Product Features & Pricing 1
What does GAP insurance primarily cover in the event of a total loss?