How to Cancel a Gap Insurance Policy and Get a Refund
Last Updated on March 9, 2023
You may have gap insurance on your new vehicle. If you have gap insurance, then you may be able to cancel your policy and get a refund.
To cancel gap insurance, contact your insurer or dealership and request cancellation. If you have already paid for gap insurance you didn’t use, you could receive a refund.
Keep reading to learn everything you need to know about canceling a gap insurance policy and getting a refund.
How Gap Insurance Works
Gap insurance, also known as guaranteed asset protection (GAP) insurance, covers the difference in value between your vehicle and the amount remaining on your own.
If you recently purchased a new vehicle, you may be “underwater” on that vehicle. That means your vehicle is worth less than what you owe.
Let’s say you finance a $50,000 truck. You make a $2,000 down payment, finance the remainder, and drive your truck off the lot. Within one month, your truck may be worth just $45,000. However, you still owe $48,000. If you are involved in a total loss insurance claim, your insurer will pay you $45,000 based on the value of your vehicle, but you would still owe $48,000. Gap insurance covers the $3,000 gap, helping you avoid paying out of pocket.
Where to Buy Gap Insurance
You can buy gap insurance from:
- Car insurance companies
- Car dealerships
- Lenders (like banks, credit unions, or car financing companies)
Sometimes, your car loan or lease payments have gap insurance built in. The lender adds gap insurance to protect the underlying asset of the loan.
How to Cancel Gap Insurance
In most cases, it’s easy to cancel gap insurance and, if you’re eligible, receive a refund.
Here’s how to cancel gap insurance and receive a refund:
Step 1) Decide if you’re buying a new gap insurance policy. If so, buy a new policy before you cancel the old policy. Make sure the policy goes into effect on the date you cancel your old policy. Otherwise, you may have a lapse in coverage.
Step 2) Contact your gap insurance company to cancel your policy. Some insurers let you cancel by phone or online form, while others require written notice. Contact your insurer, insurance agent, lender, or dealership to verify the cancellation process.
Step 3) Submit the required documentation. Before canceling your gap insurance policy, your insurer may require certain documentation. You may need to prove your vehicle’s mileage, for example, or provide paperwork about the sale of your vehicle.
Step 4) Complete the cancellation process and receive your refund. Your insurer should cancel your gap insurance policy on your desired date of cancellation, then give you a refund on any unused gap insurance premiums.
Can I Get a Refund on Gap Insurance?
You cannot get a refund on gap insurance you have already used. If you had gap insurance for the first 12 months of owning your vehicle, you can’t get a refund on those premiums.
However, you may be able to get a refund on gap insurance if you prepaid for insurance you no longer wish to use.
Suppose you buy a 12-month gap insurance policy and pay for all 12 months upfront. After six months, you decide you no longer need gap insurance. You should be able to contact your gap insurance company, cancel your gap insurance coverage, and receive a refund on all unused premiums you have already paid.
In general, you can expect to receive a refund on unused gap insurance you already paid for. However, you will not receive a refund on gap insurance you’ve already used (say, if you want a refund because you never made a claim).
Other Things to Know About Gap Insurance Refunds
Other things to know when dealing with gap insurance refund issues include:
Insurers May Deduct Cancellation Fees: Some insurers provide a full cash refund on unused premiums. Others deduct cancellation fees – say, 20% of remaining unused premiums.
Some Insurers Pro-Rate Your Refund, While Others Work Differently: Some insurers pro-rate the refund based on each remaining day in your insurance contract. Others use a different system: they assume the first few days of the contract had higher value because of the cost of signing a new customer. Instead of receiving a refund based on a fixed amount per day, you may receive a significantly lower refund because of the higher initial costs of signing up.
Some Insurers Require Written Notice: Depending on your insurer or state insurance laws, you may need to provide written notice to your insurer to cancel your gap insurance policy. For example, some insurers require you to mail a written notice to a physical address. Other insurers let you cancel online or by phone.
You Can’t Get a Gap Insurance Refund After a Total Loss: If you have been involved in a total loss insurance claim, you cannot get a gap insurance refund. Gap insurance is specifically designed for total loss insurance claims. If you had a total loss claim, you used your gap insurance and will not receive a refund.
Cancelling Gap Insurance Could Violate your Loan or Lease Agreement: Your dealership may require gap insurance on a new vehicle. If you cancel gap insurance, you could violate your loan or lease agreement. Check your paperwork to be sure.
Is Gap Insurance Worth It?
Gap insurance may or may not be worth it. Like other insurance questions, it depends on your aversion to risk, desire for peace of mind, and budget.
Here are some of the reasons gap insurance may be worth it:
- You’re financing your vehicle for a particularly long period of time (60 months or more)
- You purchased a vehicle expected to depreciate quickly
- You made a down payment of less than 20% on your vehicle
- You are leasing a vehicle
- Your lease or financing agreement requires gap insurance
Final Word: Contact Your Insurer, Dealership, or Lender to Cancel Gap Insurance and Get a Refund
Contact your gap insurance provider to cancel your policy and obtain a refund.
If you have already paid for gap insurance premiums you do not plan to use, then you could receive a refund on your gap insurance.