GAP Risk Management & Insurance Fundamentals 3

Question 1

Which insurance concept ensures that the insured has a financial stake in the property being insured?

Accepted Answer

Insurable interest

Answer

Insurable interest requires that the policyholder would suffer a genuine financial loss if the insured property is damaged or destroyed.

Question 2

In risk management, 'frequency' of loss refers to:

Accepted Answer

How often a particular loss event is expected to occur

Answer

Loss frequency measures how often a specific type of loss is likely to occur within a given period.

Question 3

A consumer finances a new vehicle with a 84-month loan and no down payment. This scenario creates elevated GAP exposure primarily because:

Accepted Answer

Longer loan terms mean slower principal payoff relative to rapid early depreciation

Answer

With 84-month loans, early payments are heavily interest-laden, so loan balances drop slowly while vehicle value depreciates rapidly, widening the gap.

Question 4

Which term describes the process by which an insurer, after paying a claim, acquires the insured's legal right to pursue recovery from a responsible third party?

Accepted Answer

Subrogation

Answer

Subrogation allows the insurer to 'step into the shoes' of the insured and recover loss amounts from the at-fault party.

Question 5

When a primary insurer pays a total loss settlement and the lienholder receives the ACV payout, the remaining loan deficiency is typically the responsibility of:

Accepted Answer

The borrower, unless GAP coverage is in place

Answer

Without GAP, the borrower remains personally liable for any deficiency balance after the primary insurer's ACV payment satisfies the lienholder.

(GAP) Guaranteed Asset Protection Certified Practice Test

(GAP) Guaranteed Asset Protection Certified Practice Test

GAP Risk Management & Insurance Fundamentals 3