GAP Product Features & Pricing Flashcards

Which distribution channel is most common for GAP products sold in the US automotive market?

Answer: Franchised and independent auto dealerships

The majority of GAP products in the US are sold through franchised and independent auto dealerships at the point of vehicle sale.

Which entity typically underwrites and assumes the risk on a dealer-sold GAP product?

Answer: A licensed insurance company or risk-retention group

Dealer-sold GAP products must be backed by a licensed insurer or risk-retention group that ultimately assumes the financial risk of total loss claims.

What does the term 'actual cash value' (ACV) mean in the context of a GAP claim?

Answer: The market value of the vehicle immediately prior to the total loss

ACV is the fair market value of the vehicle at the time of loss, which is the settlement basis used by the primary auto insurer before GAP applies.

A GAP product that is offered at no charge by a lender as a loan feature (rather than a separately purchased product) is commonly referred to as:

Answer: Lender-paid or embedded GAP

Lender-paid or embedded GAP is a benefit the financial institution builds into select loan products at no direct cost to the borrower, often as a competitive differentiator.

Which of the following items is ADDED to the outstanding loan balance when calculating the GAP benefit payable?

Answer: Earned but unpaid interest at the time of loss, per program rules

Some GAP programs include earned but unpaid accrued interest in the payoff calculation, which can increase the calculated gap depending on payment timing.

Which regulatory body most directly governs the sale of GAP insurance products at the state level in the US?

Answer: State department of insurance

GAP insurance products are regulated at the state level by each state's department of insurance, which licenses carriers, approves policy forms, and oversees market conduct.