HomeInsuranceCan I Cancel Gap Insurance and Get a Refund? – Forbes Advisor

Can I Cancel Gap Insurance and Get a Refund? – Forbes Advisor

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Gap insurance can offer you peace of mind if you owe more than your car is worth if it gets totaled. But if you no longer want or need gap insurance, you may be able to get a refund on the premium you already paid.

What Is Gap Insurance?

Gap insurance covers the “gap” between what you owe on your car loan or lease and the depreciated value of your car if it is totaled due to a problem covered by your policy, like a car accident. Gap insurance is sometimes called loan/lease coverage.

How Does Gap Insurance Work?

You take on a slight risk if you take out a loan to purchase a new or used vehicle. A new car depreciates quickly. Cars can lose over 10% of their value in the months following a purchase and over 20% in the first year, according to CarFax.

If you wreck your car while your auto loan principal balance remains high, you may owe the lender the difference between the loan balance and the car insurance claim payout. That’s where gap insurance can help.

Gap insurance can be worth it for any of these reasons:

  • You’re financing the vehicle for 60 months or longer.
  • You bought a car that depreciates more quickly than an average vehicle.
  • Your down payment was less than 20%.
  • You’re leasing a vehicle.

You can typically buy gap insurance from:

When you buy gap insurance, you’ll usually pay your premium as a lump sum or monthly payments. Paying a lump sum means you may get refunded the unused money spent on coverage later. If you pay monthly, you may get a smaller refund if you cancel the policy early in the month.

Can You Get a Gap Insurance Refund?

You may get a refund for gap insurance for multiple reasons:

  • You no longer want or need it
  • You change gap insurance companies
  • You paid off your auto loan or paid enough of the balance that it’s less than the car’s actual cash value
  • You sold your vehicle

If you already paid for gap insurance, you can cancel it and request a refund from your car insurance company for any unused portion of the coverage. For example, if you have six months of coverage left on a 12-month gap insurance policy and you cancel, you can be reimbursed for the unused six months minus any fees.

That’s true so long as the policy has not expired and there is no deadline by which you have to request a refund.

Can you get a gap insurance refund after a total loss?

If your car is deemed a total loss and your gap coverage pays the difference between what you owe on your car loan or lease and your car’s actual cash value, you won’t qualify for a gap refund for the months remaining on your policy.

Related: Solving Totaled Car Insurance Problems

Can you get a dealership gap insurance refund?

If you purchased gap insurance directly from a dealer, you’re entitled to request a refund just as if you bought coverage directly from an insurance carrier or lender/bank, so long as you have not already received a gap claim payout and the policy remains in-force.

Some dealers roll in the cost of gap insurance into an auto loan provided through the dealer.

When you cannot get a gap insurance refund

You’re within your rights to cancel gap insurance and request and receive a refund for your unused coverage under most circumstances. But there are scenarios in which you aren’t eligible for a refund, including when:

  • Your gap insurance policy expired.
  • The deadline by which you must formally make a claim has expired, as detailed in your policy.
  • You have not paid your gap policy premium.

How to Cancel Gap Insurance and Get Your Refund

If you’ve made up your mind and decided to cancel your gap insurance, here’s what you need to do to request and receive a refund of your unused coverage:

  1. If you’re seeking to switch to a different gap insurance company, make sure you have a new policy ready to go into effect after canceling your existing gap policy to ensure there’s no lapse in your vehicle’s coverage.
  2. Contact your gap insurance company. Ask them to cancel your gap insurance and issue a refund for unused coverage.
  3. Be prepared to collect and provide information and documents to your insurance company if they request it, such as proof that your vehicle was sold, traded or paid off, and verification of your car’s current mileage.
  4. Fill out and submit any documentation or forms your insurance company requires to complete the cancellation.

How to get a gap insurance refund after a trade-in

The same refund instructions apply if you are trading in your car for another. Expect to furnish proof to your insurance company that you have traded in the vehicle and paid off its loan in full.

How Long Does it Take to Get a Gap Insurance Refund?

The typical gap insurance refund payout is within 30 days, but it can vary by company and state regulations, says Mark Friedlander, spokesman for the Insurance Information Institute.

How to Calculate a Gap Insurance Refund

The refund amount you may be eligible for will depend on the cost of your gap insurance premium and how long is left on your current policy. Most policies cover 12 months and are paid annually. A Forbes Advisor analysis found the average cost of gap insurance added to a car insurance policy is $60 a year.

If you paid for a gap insurance policy starting in early January and want to cancel in late April, you’ll likely qualify for a refund equating to eight months of unused coverage. In this example, let’s say your annual premium is $60. Divided by 12 months, that would equate to about $5 per month. If you are eligible for a refund of the unused eight months, that would total $40.

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