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 distinguishes a GAP insurance policy from a GAP waiver addendum?
Answer: GAP insurance is underwritten by an insurer; a GAP waiver is a contractual agreement by the lender to cancel debt
GAP insurance is a regulated insurance product underwritten by a licensed carrier, while a GAP waiver is a lender's contractual promise to cancel the deficiency balance — each governed by different regulations.
Which condition would allow a GAP administrator to reduce the benefit payment?
Answer: The outstanding loan balance included extended warranty or GAP premiums rolled into financing
Rolled-in costs like extended warranties or the GAP premium itself are typically excluded from the eligible loan balance, reducing the calculated benefit.
What is the purpose of the 'loan-to-value (LTV) ratio cap' found in some GAP agreements?
Answer: To limit coverage to loans where the financed amount does not exceed a certain percentage of the vehicle's value
Some GAP agreements cap eligibility at a specific LTV ratio (e.g., 150%) to limit exposure on loans that significantly exceed the vehicle's value at origination.
How does GAP coverage respond when the primary insurer underpays an ACV settlement due to a dispute?
Answer: GAP typically pays based on the primary insurer's settled ACV, not a disputed higher amount
GAP benefit calculations use the primary insurer's actual settlement amount, so a disputed or reduced ACV payout directly reduces the GAP benefit.
A customer's vehicle is stolen and never recovered. Which outcome correctly describes the GAP claim process?
Answer: After a waiting period for recovery (typically 30 days), the primary insurer declares total loss and GAP covers the shortfall
Primary insurers generally require a 30-day waiting period before declaring a stolen unrecovered vehicle a total loss, after which GAP covers the remaining balance shortfall.
What term describes the maximum loan term length that a vehicle must fall within to be eligible for GAP coverage under most agreements?
Answer: Maximum finance term
Most GAP products specify a maximum finance term (e.g., 84 months) beyond which the product is not available, as longer terms increase exposure risk.
Under a GAP agreement, what is the correct treatment of a primary insurer's salvage value recovery?
Answer: Salvage value is credited to the lender before calculating the remaining deficiency
The primary insurer's ACV settlement already accounts for salvage value; the net proceeds to the lender are used to calculate the remaining deficiency that GAP covers.