Common Mistakes
Customers Collison Coverage / Limited Liability / Actual Cash Value
Recently we have seen claims where the customer’s primary insurance has a stated maximum limit versus Actual Cash Value. When GAP is sold there is a tendency to indicate to the customer that if a total loss occurs, GAP will cover the difference between the primary insurance settlement and the amount the customer still owes on the collateral. However, the GAP waiver stipulates the Actual Cash Value because it is the valuation used when the insurer calculates the GAP settlement amount. This brings up the potential of the GAP not covering the difference between the primary insurance settlement and the balance still owed by the customer. These balances, in some cases, can be substantial.
Here are three examples of the customer balance showing how the settlements vary to illustrate the adverse potential of having primary insurance with limited liability vs. Actual Cash Value.
Primary Coverage
Customer's Balance-
LTD without GAP
$35,000 -
LTD with GAP
$35,000 -
With ACV & GAP
$35,000
Primary Coverage
Primary Limited Cover-
LTD without GAP
$25,000 -
LTD with GAP
$25,000 -
With ACV & GAP
$32,000
Primary Coverage
GAP-
LTD without GAP
$0 -
LTD with GAP
$3,000 -
With ACV & GAP
$3,000
Primary Coverage
Customer Owes-
LTD without GAP
$10,000 -
LTD with GAP
$7,000 -
With ACV & GAP
$0
Some things you should avoid when selling GAP
The above example is a major point. If such an example occurs and the customer’s expectation is the GAP purchase will leave a “0” balance then you, the selling dealer, will have one very unhappy customer. So, always ask your customers what type of insurance coverage is in effect Actual Cash Value or a Stipulated Maximum. If the latter, explain what could happen if a total loss occurs. You could suggest that the customer change to Actual Cash Value or you may opt not to sell GAP to that customer.
Other notable points when selling GAP:
- When a 10 year GAP is cancelled in the first 5 years or less, your chargeback can be 50% or more of your original profit. That’s money you’ve already spent!
- That’s why Broad Street offers 4, 5, and 6 year GAP terms. These cost you less, can still be marked up profitably and “PROTECT YOUR FUTURE INCOME”.
- The shorter term GAP provides protection for your customers when they need it most in the initial years of their ownership. Think of it as “Critical Period Protection“!!
- Remember last year when you saw a lot of first time buyers. With a little bit of exposure to other RV owners, the first timers will want “bigger“, with more bells and whistles, so they tend to come back for upgrades in 3-4 years or even sooner. Why not sell 4 and 5 year GAP coverage? Again, this provides Critical Period Protection, and more importantly for you, fewer and smaller cancellation chargebacks. So, when they upgrade, your income is not downgraded!!
