GAP Risk Management & Insurance Fundamentals 2

Question 1

Which risk management technique involves transferring financial loss to an insurance company in exchange for a premium?

Accepted Answer

Risk transfer

Answer

Risk transfer shifts the financial burden of a potential loss to a third party, typically an insurer, via a premium payment.

Question 2

In the context of GAP insurance, 'negative equity' refers to a situation where:

Accepted Answer

The loan balance exceeds the vehicle's actual cash value

Answer

Negative equity (being 'upside down') occurs when the outstanding loan balance is greater than what the vehicle is currently worth.

Question 3

Which of the following best describes 'actual cash value' (ACV) as used in auto insurance?

Accepted Answer

The replacement cost minus depreciation

Answer

ACV is calculated as the replacement cost of the vehicle less accumulated depreciation at the time of loss.

Question 4

A dealership sells a vehicle for $35,000 with a down payment of $500. Six months later the vehicle is totaled and its ACV is $28,000 while the loan balance is $33,500. Approximately how much would GAP cover?

Accepted Answer

$5,500

Answer

GAP covers the difference between the ACV ($28,000) and the loan balance ($33,500), which is $5,500.

Question 5

The principle of indemnity in insurance means that:

Accepted Answer

The insured is restored to roughly the same financial position as before the loss

Answer

Indemnity prevents the insured from profiting from a loss; it restores them to their pre-loss financial position.

(GAP) Guaranteed Asset Protection Certified Practice Test

(GAP) Guaranteed Asset Protection Certified Practice Test

GAP Risk Management & Insurance Fundamentals 2