Risk Management & Insurance Fundamentals 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 Management & Insurance Fundamentals flashcards as text
A borrower's primary auto insurer pays $20,000 ACV on a totaled vehicle. The remaining loan balance is $24,500 and GAP coverage has a $1,000 deductible waiver benefit. How much does GAP pay?
Answer: $4,500
The deficiency is $4,500 ($24,500 − $20,000), and the deductible waiver benefit covers the primary insurer's deductible, but in this case GAP pays the $4,500 deficiency.
Which regulatory body most commonly oversees the licensing and sale of GAP insurance products at the state level in the US?
Answer: State Department of Insurance
Insurance regulation in the US is primarily state-based, and each state's Department of Insurance governs the licensing and sale of GAP products.
Which scenario would most likely result in a GAP claim denial?
Answer: Loss discovered to be a pre-existing salvage title vehicle
Most GAP policies exclude vehicles with pre-existing salvage or branded titles because the insurable risk was not properly disclosed at inception.
A dealer-offered GAP product sold as part of a finance contract is typically classified as:
Answer: A property and casualty insurance product or a debt cancellation addendum
GAP is offered either as a P&C insurance policy through a licensed insurer or as a debt cancellation/suspension addendum regulated under banking law.
In insurance terminology, 'moral hazard' refers to:
Answer: The tendency of insured parties to take greater risks because they are protected by insurance
Moral hazard arises when insurance coverage reduces the incentive for the insured to prevent losses or act carefully.
Which of the following would increase the loan-to-value (LTV) ratio at the inception of a finance contract, thereby increasing GAP exposure?
Answer: Rolling negative equity from a previous trade-in into the new loan
Rolling negative equity from a prior vehicle into the new loan increases the starting balance beyond the vehicle's value, immediately creating greater GAP exposure.
The concept of 'utmost good faith' (uberrimae fidei) in insurance requires that:
Answer: Both parties disclose all material facts relevant to the insurance contract
Utmost good faith obligates both insurer and insured to fully disclose all information material to the risk when forming the contract.