Article by our partners at Frost Financial Services | www.frostinsure.com
Do you ever finance RVs or travel trailers? If so, make sure to stress the importance of GAP protection on these loans. While you may not see many accidents involving RVs or travel trailers, many of them experience total losses each year. Accidents are certainly not as frequent, but plenty are so severely damaged due to flood, vandalism, fallen trees, and fire that they are unrepairable and deemed total losses by primary insurers.
Adding to the GAP risk on RVs and travel trailers is the challenge of accurately valuing the collateral at the time of financing. You can utilize a guide book or even refer to a dealer invoice, but validating model and options can oftentimes lead to many more challenges and errors in valuing RVs and travel trailers than we see in the much more standardized world of autos. These errors can create significant overvaluation of collateral and unexpected exposure to loss. And, if you think automobiles and trucks are depreciating rapidly these days, these are luxury items and can see even more wild swings in values from year to year as market conditions change.
Lastly, the loans for these collateral types tend to be longer terms. This means that the loan balances will amortize down more slowly and only add to the potential of a large GAP loss even when the loan was financed well under 100% of the value at loan origination.
A recent claim highlights how a number of the above factors can come together and result in a significant GAP claim.
In May 2015 the lender financed $92,485 on a 42′ Jayco RV that had an assumed value of $83,710. Three years later a fire caused a total loss of the RV and the settlement provided by the primary insurer was $53,445. This left an outstanding loan balance of $30,595. Fortunately, this loan had GAP protection and the $30,595 loan balance was paid in full.