Coverage Terms & Conditions Flashcards
7 cards from real GAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Coverage Terms & Conditions flashcards as text
What is 'negative equity' in the context of GAP coverage?
Answer: The situation where the loan balance exceeds the vehicle's ACV
Negative equity, or being 'upside down,' occurs when the outstanding loan balance is greater than what the vehicle is worth — the core risk GAP addresses.
Which of the following is typically NOT covered by a standard GAP agreement?
Answer: Carry-over balance from a previous loan rolled into the current loan
Carry-over or rolled-over balances from a prior vehicle loan are excluded because they represent debt unrelated to the current vehicle's value.
What role does depreciation play in why consumers need GAP coverage?
Answer: Rapid early depreciation creates a gap between loan balance and ACV
Vehicles depreciate rapidly in their first years, often faster than the loan balance decreases, creating the 'gap' GAP insurance is designed to cover.
At what point in the loan term is a borrower most likely to need GAP coverage?
Answer: In the early months of the loan when depreciation outpaces payoff
The gap between loan balance and ACV is largest early in the loan term due to front-loaded interest and fast initial depreciation.
Which documentation is typically required to process a GAP claim?
Answer: Primary insurer's settlement letter, loan payoff statement, and police report if applicable
GAP administrators require the primary insurer's total loss settlement, lender's payoff statement, and relevant police/incident reports to calculate the benefit.
How is the GAP benefit typically paid?
Answer: To the lender to satisfy the remaining loan balance
GAP benefit payments go directly to the lender to pay down or extinguish the remaining loan balance after the primary insurer's settlement.
A GAP agreement that covers a vehicle used for ridesharing would be:
Answer: Typically excluded under commercial use provisions
Commercial or rideshare use (Uber, Lyft) typically triggers a commercial-use exclusion in standard GAP contracts, voiding the benefit.