Dealer F&I Resources
F&I Glossary: Dealer Finance and Insurance Terms
A plain language reference to the finance and insurance terms specialty equipment dealers use every day, from vehicle service contracts and GAP to reinsurance, DOWC, and profit participation.
F&I stands for finance and insurance, the dealership function that arranges customer financing and offers protection products such as service contracts, GAP, and prepaid maintenance. This glossary defines 46 of the most common F&I terms so dealers, managers, and buyers can compare programs with confidence.
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831(b) election
A United States federal tax election that lets a qualifying small insurance company, such as a dealer owned reinsurer, be taxed only on its investment income rather than its underwriting income, within annual limits set by the IRS. It is frequently associated with dealer reinsurance and profit participation structures. Dealers should confirm eligibility with a qualified tax advisor.
A
Administrator
The company that manages a protection product on a day to day basis, including issuing contracts, adjudicating claims, and paying repair facilities. WeCoverUSA acts as an independent administrator across a network of providers.
Aftermarket product
Any protection or coverage product sold after the unit itself, rather than by the original manufacturer. Vehicle service contracts, GAP, and tire and wheel coverage are all aftermarket products.
Ancillary product
F&I products offered alongside the core service contract, such as tire and wheel, appearance protection, theft protection, and prepaid maintenance. Ancillary products raise product penetration and back end profit.
Appearance protection
Coverage for cosmetic damage such as paint, fabric, dents, and windshield chips, typically sold at the point of sale and applied over the life of the contract.
B
Back end gross
Dealership profit generated in the F&I office from financing reserve and protection products, as opposed to front end gross from the sale of the unit itself.
C
Cancellation
The early termination of a service contract or ancillary product. Most contracts provide a pro rata or short rate refund of unused premium, subject to the contract terms.
Captive
A provider, insurer, or program owned by or tied to a single manufacturer or dealer group. An independent administrator is the opposite of a captive because it can place business across many providers.
CFC (Controlled Foreign Corporation)
A reinsurance profit participation structure in which a dealer owns a controlled reinsurance company, often domiciled offshore, that assumes risk on the products the dealership sells and retains the underwriting profit and investment income.
Chargeback
The reversal of F&I commission or reserve when a customer cancels a financed contract or product before it is fully earned. Dealers often hold a chargeback reserve to absorb this risk.
Claims administrator
The party responsible for reviewing, approving, and paying claims under a service contract. Fast and fair claims handling is a primary reason dealers choose one administrator over another.
Compliance
Adherence to the federal and state rules that govern F&I selling, including the Red Flags Rule, the Gramm Leach Bliley Act, the Truth in Lending Act, and menu disclosure requirements.
D
Deductible
The amount a customer pays toward a covered repair before the service contract pays the rest. Common structures include a flat deductible per visit or a disappearing deductible.
DOWC (Dealer Owned Warranty Company)
A profit participation structure in which the dealer owns the warranty company that serves as the obligor on its contracts. The dealer retains underwriting profit and investment income and controls reserves, with more administrative responsibility than a simpler reinsurance model.
E
ESC (Extended Service Contract)
A contract that pays for covered mechanical repairs after the manufacturer warranty ends. In specialty equipment the terms extended service contract and vehicle service contract are used interchangeably.
F
F&I (Finance and Insurance)
The dealership function that arranges customer financing and presents protection products such as service contracts, GAP, and maintenance plans. F&I is a major source of dealership gross profit.
G
GAP (Guaranteed Asset Protection)
A product that helps cover the difference between what a customer still owes on a loan and what primary insurance pays if the financed unit is a total loss or is stolen, subject to the contract terms.
L
Loss ratio
Claims paid divided by premium earned over a period. Loss ratio measures how a product or a book of business is performing and directly affects reinsurance profitability.
M
Manufacturer warranty
The coverage the original maker of a unit provides against defects for a set time or usage. A service contract is a separate purchase that extends protection beyond it.
N
NCFC (Non-Controlled Foreign Corporation)
A reinsurance structure in which no single dealer controls the reinsurer. It lets smaller volume dealers participate in underwriting profit through a shared entity with lower administrative burden than a controlled company.
O
Obligor
The party legally responsible for paying claims under a service contract. Depending on the program the obligor may be the administrator, an insurer, or a dealer owned company.
OEM
Original Equipment Manufacturer, meaning the company that built the unit. OEM warranty and OEM parts refer to coverage and components from that manufacturer.
P
Powertrain
The engine, transmission, and drive components that deliver power to the wheels or drivetrain. Powertrain coverage protects these core mechanical parts.
PPM (Prepaid Maintenance)
A plan that prepays scheduled maintenance such as oil changes and routine service at the point of sale, locking in the work and building service department retention.
Producer
The licensed agent or agency that places an insurance backed product. Licensing requirements vary by product and by state.
Product penetration
The share of deals in which a given product is sold, for example the percentage of financed units that include a service contract. Higher penetration raises F&I income per unit.
Profit participation
Arrangements that let a dealer share in the underwriting profit and investment income of the protection products it sells, through reinsurance, a retro program, or a dealer owned warranty company.
PVR (Per Vehicle Retailed)
The average F&I gross profit earned per unit sold. PVR is one of the most watched measures of F&I department performance.
R
Red Flags Rule
A Federal Trade Commission regulation that requires dealers who arrange financing to maintain a written program to detect and prevent identity theft.
Reinsurance
A profit participation model in which the dealer forms or owns a reinsurance company that assumes risk on the products it sells. The dealer earns underwriting profit and investment income as claims run their course.
Reserve
Funds set aside to pay future claims on contracts already sold. Adequate reserves protect a program from unexpected claim frequency or severity.
Retro (Retrospective) program
A profit sharing program that returns a portion of underwriting profit to the dealer after claims are settled, without the dealer forming a separate reinsurance company. It is a simpler entry point than reinsurance or a DOWC.
Road hazard
Damage to a tire or wheel from debris, potholes, or other conditions encountered in normal use. Tire and wheel protection typically covers repair or replacement from road hazards.
S
Service contract
A contract that pays for covered repairs or maintenance on a unit. It is purchased separately from the unit and is distinct from a manufacturer warranty.
Surcharge
An additional cost applied to units with higher risk characteristics, such as commercial use, performance modifications, or heavier duty cycles.
T
Theft protection
Products that deter theft and assist recovery, such as identification etching and GPS tracking. They can reduce loss for both the customer and the dealer inventory.
Tire and wheel protection
Coverage that repairs or replaces tires and wheels damaged by road hazards, often bundled with roadside assistance.
Total loss
A condition in which a unit is stolen and not recovered, or is damaged beyond an insurer defined repair threshold. GAP addresses the loan balance gap that can remain after a total loss.
TPA (Third Party Administrator)
An independent company that administers protection products on behalf of the obligor. See Administrator.
U
Underwriter
The licensed insurance company that backs the financial obligations of a protection product. Underwriter strength is a key measure of program security.
Underwriting profit
Premium earned minus claims paid and expenses. Underwriting profit is the profit that a reinsurer or dealer owned warranty company can retain when a book of business performs well.
V
VSC (Vehicle Service Contract)
A contract that covers mechanical breakdown repairs after the manufacturer warranty ends. VSC is the specialty equipment equivalent of an extended warranty and is the core F&I product for most dealers.
W
Warranty
A promise by a manufacturer to repair or replace defective parts for a set period. A warranty comes from the maker of the unit, while a service contract is purchased separately.
Wealth building
The long term strategy of using profit participation structures so that a dealer keeps the underwriting profit and investment income from the products it sells, rather than giving that value away to an outside provider.
Put these terms to work
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