Risk Assessment & Underwriting 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 Risk Assessment & Underwriting flashcards as text
In GAP underwriting, 'negative equity' refers to:
Answer: The condition where loan balance exceeds the vehicle's ACV
Negative equity occurs when the outstanding loan balance is greater than the vehicle's actual cash value, creating a financial gap.
Which of the following is a standard GAP underwriting exclusion that an assessor must verify?
Answer: Vehicles with a branded or salvage title
Branded or salvage title vehicles are excluded from GAP coverage because their ACV is already significantly reduced, distorting normal depreciation risk models.
A risk assessor notes that a vehicle model has an unusually low residual value at 36 months. This information is MOST relevant to:
Answer: Setting the maximum eligible loan term for GAP coverage
Low residual values indicate rapid depreciation, so underwriters may cap the eligible loan term to limit the window of negative equity exposure.
When rolling negative equity from a trade-in into a new vehicle loan, the GAP underwriter's PRIMARY concern is:
Answer: The combined LTV now includes prior debt, potentially exceeding program limits
Rolled-in negative equity inflates the new loan balance above the new vehicle's value, immediately increasing GAP exposure beyond standard origination risk.
Which depreciation curve characteristic is considered MOST favorable from a GAP risk perspective?
Answer: Gradual, consistent depreciation over the full loan term
Gradual, consistent depreciation means the ACV declines at a pace more closely matching loan paydown, reducing the magnitude and duration of the negative equity gap.
A GAP underwriter reviewing a commercial vehicle application would consider which ADDITIONAL risk factor not typically present in personal auto GAP?
Answer: Higher annual mileage and accelerated depreciation from commercial use
Commercial use accelerates depreciation and wear, causing ACV to drop faster than standard depreciation tables predict, increasing GAP exposure.
Which document is the MOST authoritative source for establishing a vehicle's ACV at the time of a GAP claim assessment?
Answer: A recognized industry valuation guide (e.g., NADA, Black Book, CCC)
Recognized valuation guides provide market-based ACV figures that GAP programs use as the standard reference for calculating claim payouts.