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
Which of the following best describes a 'debt cancellation addendum' (DCA) as an alternative to traditional GAP insurance?
Answer: A contractual agreement between lender and borrower that cancels the deficiency balance upon a qualifying loss
A DCA is a finance product—not an insurance policy—in which the creditor agrees to cancel the remaining balance upon a qualifying total loss event.
An insurance policy's 'declarations page' primarily provides:
Answer: A summary of key coverage details including named insured, limits, and premium
The declarations page (dec page) is a summary document identifying the insured, covered vehicle, coverage limits, deductibles, and premium.
When evaluating total loss settlements for GAP purposes, a 'betterment' charge occurs when:
Answer: The primary insurer deducts for pre-loss wear, damage, or improvements that increased vehicle value
Betterment deductions reduce the ACV settlement when pre-existing damage or wear would have required repair regardless of the total loss event.
Which of the following is a characteristic of 'pure risk' as opposed to 'speculative risk'?
Answer: It involves only the possibility of loss or no loss, with no chance of gain
Pure risk involves outcomes that are either a loss or the status quo—there is no upside gain—making it the type of risk insurance is designed to cover.
A GAP waiver product sold through a credit union is most likely regulated under:
Answer: The National Credit Union Administration (NCUA) and applicable banking regulations
Credit union GAP products offered as debt cancellation agreements fall under NCUA oversight and federal banking regulations rather than state insurance law.
Which depreciation pattern is most commonly observed in new passenger vehicles during the first year of ownership?
Answer: Rapid depreciation of approximately 15–25% in the first year
New vehicles typically lose 15–25% of their value within the first year, which is the primary driver of GAP exposure at loan inception.
Under RESPA and TILA disclosure requirements, GAP insurance sold in connection with an auto loan must generally:
Answer: Be included in the APR calculation as a finance charge if required by the lender
If GAP coverage is required by the lender as a condition of the loan, its cost must be included in the finance charge and reflected in the APR disclosure.