Investment Strategies 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 Investment Strategies flashcards as text
A customer's vehicle is totaled 14 months into a 60-month loan. The lender's primary insurance settlement is $21,500, but the outstanding loan balance is $26,800. What does the GAP benefit cover?
Answer: The $5,300 difference between the settlement and the loan balance
GAP covers the difference between the primary insurance ACV settlement and the remaining loan balance, which in this case is $5,300.
Which investment strategy should a finance manager use to maximize GAP adoption without triggering lender compliance concerns?
Answer: Present GAP as a standalone value proposition tied to the customer's specific LTV
Presenting GAP transparently as a solution to the customer's specific financial risk is both compliant and the most effective sales strategy.
When comparing a single-premium GAP product financed into the loan versus a monthly-fee GAP program, which investment consideration favors the single-premium structure for the dealership?
Answer: The dealer books the entire premium income at contract signing
With a single premium financed into the deal, the dealership recognizes the full profit at point of sale, improving immediate F&I income metrics.
A GAP program administrator raises the retail price cap from $895 to $1,195. What is the most direct strategic investment implication for the F&I department?
Answer: Higher potential gross profit per GAP unit sold
A higher allowable retail price cap means the F&I manager can price the product at a higher point, increasing gross profit per policy.
From a customer financial planning perspective, which scenario makes GAP coverage the LEAST critical investment?
Answer: Customer who paid 35% down and has 24 months remaining on a 36-month loan
After a large down payment and significant principal paydown over 24 months, the loan balance will likely be below or near the ACV, minimizing gap risk.
A dealership's GAP claims experience shows a 3.2% loss ratio against reserves. What is the most appropriate strategic response from an investment standpoint?
Answer: Review the reinsurance program for profit-sharing distributions
A 3.2% loss ratio indicates very low claims relative to reserves, which in a reinsurance structure typically triggers profit-sharing distributions back to the dealer.
Which regulatory framework most directly governs the sale of GAP insurance (as opposed to a GAP waiver) in most U.S. states?
Answer: State department of insurance licensing and product filing requirements
GAP insurance is an insurance product and falls under state department of insurance jurisdiction, requiring proper licensing and product filings.