GAP insurance and VSC can help your credit union and its members.
By Tom Kazar Sponsored by Transamerica
Throughout life’s metaphoric winding road, almost every choice has a risk attached. And some of the more expensive risks take place literally on the roads, streets, and highways. Most of the time people try to mitigate risks so that negative consequences incurred will be minimal. For example, your members may drive more cautiously in the rain and never let their gas tank fall below half full. Yet, even the best mitigators cannot completely eliminate risk. That is why there are protection products available to help protect you and your members. Let’s look at a common scenario. A member wants to purchase a new vehicle with financing from your credit union. According to the latest "State of the Automotive Finance Market" report, in the fourth quarter of 2014, 84 percent of new vehicles were purchased with financing, the average loan amount hit its highest level on record, and the average loan term increased to 66 months. Over the next five and a half years, many chances for potential unfortunate events and financial exposure exist.
- The vehicle may be totaled or stolen.
- The vehicle may have a major breakdown.
- If either of the first two unfortunate events occurs, your borrowers may not be able to make their loan payments.
While losses are unpredictable and inconvenient, protection products may help mitigate some of that loss and help you and your members reduce exposure to financial risk. Guaranteed auto protection is a type of coverage that can be very beneficial to your borrower. It pays the difference, in the event of a total loss, between what the member owes on the car and what it is worth in an insurance company's eyes. With estimates that one in seven vehicle accidents ends in a total loss and--according to FBI crime figures--699,594 vehicles were reported stolen last year, GAP can be very valuable. Another valuable protection is a vehicle service contract. (VSC also means “mechanical breakdown insurance” in some states where applicable.) Many borrowers have not set aside hundreds or thousands of dollars for vehicle repairs. In fact, over two-thirds of respondents in a recent MassMutual survey said they don’t have enough money saved in case of a financial emergency, having, on average, $2,300 stored away. Parts and systems are expensive to fix, so that may not be enough to afford a major break down. A VSC helps by paying for parts and labor for covered repairs or replacements. Even though it’s a long road ahead, few people are prepared for the risks of large, unexpected expenses. GAP and VSC products can help protect your borrowers and your credit union from that unhappy scenario and reduce exposure to financial risk.
Tom Kazar is VP/sales and leader of the sales team for Transamerica Financial Solutions Group. His focus is on adding new insurance industry products, expanding marketing distribution channels and helping agents grow their business. Reach him at 630.215.6042. CUES School of Consumer Lending will take place July 13-14 in Seattle, followed immediately by the CUES Advanced School of Lending, July 15-16 in the same location.
