Drivers can cancel gap insurance at any moment because it isn’t needed. When the car’s value exceeds the amount owed, most drivers no longer require coverage. If you cancel your gap insurance coverage early, you may be eligible for a partial refund of your premiums.
To qualify for a gap insurance refund, you must meet certain requirements, including having paid premiums in advance. You can get a refund on gap insurance if you cancel the coverage because the automobile was totaled, though. Continue reading to learn when and how to obtain a gap insurance refund.
What is Gap Insurance?
Gap insurance covers the “gap” between what you owe on your automobile loan or lease and the depreciated worth of your vehicle if it is totaled as a result of a covered problem, such as a car accident. Loan/lease coverage is another term for gap insurance.
How Does Gap Insurance Work?
If you borrow money to buy a new or used car, you are taking a small risk. A new car loses its value soon. According to CarFax, cars can lose over 10% of their value in the months following purchase and over 20% in the first year.
If you crash your automobile while your auto loan principal balance is still high, you may repay the lender the difference between the loan balance and the amount paid out by your car insurance. This is where gap insurance comes in.
Gap insurance may be beneficial for any of the following reasons:
- You’re financing the car for at least 60 months.
- You bought an automobile that depreciates faster than an ordinary vehicle.
- You put down less than 20%.
- You’re leasing an automobile.
You may purchase gap insurance from;
- Car insurance companies
- Automobile dealers
- Financial institutions such as banks and credit unions
When you purchase gap insurance, you can choose to pay your premium in one big sum or in monthly installments. When you pay in one lump payment, you may be refunded any unused coverage money later on. If you pay monthly, you may receive a lower refund if you cancel the policy at the beginning of the month.
What is a Gap Insurance Refund?
You will receive a GAP insurance refund if you terminate your GAP coverage early. This normally happens after you pay off your loan, or if you sell or trade-in your vehicle before you pay it off. Typically, in order to qualify for a GAP insurance refund, you must first pay for the GAP insurance. If you paid for your GAP insurance monthly, you may still qualify for a refund, but it will likely be significantly smaller than if you paid ahead.
The amount of money you receive as a refund varies, but it is usually based on the following factors:
- The car’s worth
- Auto loan amount
- The current mileage of the car
- The loan term
To determine how much of a refund you’ll get if you paid for the GAP policy upfront, simply divide the entire cost of the insurance by the number of months you had coverage—this gives you your monthly premium. Once you’ve calculated the monthly premium, double it by the number of months remaining on your insurance. That figure is a decent indication of how much your refund should be, but because each insurance provider has a different process, you’ll need to confirm the amount with them.
When Can You Get a Refund on Your Gap Insurance?
Insurance companies may have a set cutoff deadline for GAP insurance refunds, but normally you can qualify for a refund at any moment before the policy period finishes. For example, if you buy a GAP policy that is supposed to last 36 months but cancel after 24 months, you may be eligible for a refund.
You may not be eligible for a refund if your vehicle is stolen or totaled and no longer drivable. You may need to use the coverage to cover your losses instead.
If you pay off your auto loan early, you may be eligible for a refund; however, if you pay it off on time, you may not be eligible for one.
Check with the insurance provider before signing up for any form of GAP insurance policy to see what types of qualifying events can result in a refund or potential ineligibility for a refund.
When You Can’t Get a GAP Insurance Refund
Again, great news. There is only one circumstance in which a GAP insurance refund is not available. Okay, two if you count the fact that you didn’t have GAP insurance in the first place.
But let’s focus on the important one. If your insured car is declared a total loss and your GAP policy pays out the difference between the car’s value and your loan debt, you won’t be entitled to a refund for the remaining months of coverage. This is because the insurance company believes they’ve satisfied (or exceeded) their commitment to the GAP coverage you purchased and are no longer liable for policy payouts.
How To Get a Refund From Your GAP Insurance Company
Now that we’ve discussed GAP refund requirements, let’s move on to how to obtain one.
Canceling Your GAP Insurance: Some Things to Think About
Before we get into the specifics of requesting a GAP refund, there are a few things to consider that could influence your decision:
- You will only be refunded for unused GAP insurance. For example, if you cancel your policy after three months, you will only receive a refund for the remaining nine months (assuming you paid for a year of coverage).
- Your refund is calculated based on how you pay your insurance bill. You won’t obtain a refund if you pay monthly because you’ve only paid for the coverage you’ve received thus far. If you pay your insurance in one lump sum, the amount of your refund will depend on how far into your coverage you were when you canceled your policy.
- It usually takes four to six weeks to recover your money once you cancel your policy and request a refund.
- You must request a refund through GAP insurance. Most insurance firms do not provide these by default.
Guide on Cancelling Your GAP Insurance Policy
Now comes the detailed instructions. The following steps assume you purchased your GAP insurance from your insurance provider rather than the car dealership. (Hint: Getting it from your insurance carrier is far less expensive.)
- Contact your insurance company to begin the refund procedure. Inform them of your name and policy number, as well as your desire to terminate your GAP insurance and receive a refund for any outstanding coverage. Remember, don’t do this until after your automobile is lawfully sold or traded or your loan is completely paid off.
- Collect and send documents to your insurance company proving that your car was traded, or sold, or that you paid off your loan early.
- Fill out and submit any forms required by your insurance provider to complete the cancellation process.
- If anything is uncertain, tell your provider you want a refund for the unused GAP insurance coverage. Within four to six weeks of your cancellation request, most insurance providers will send you a check for your refund.
How To Calculate Your Gap Insurance Refund
The amount of your refund will be determined by the cost of your gap insurance premium and the length of your current policy. Most plans are paid annually and cover a period of 12 months.
According to a Forbes Advisor analysis, the average cost of adding gap insurance to a car insurance policy is $60 per year.
If you purchased a gap insurance policy in early January and wish to cancel in late April, you will most likely be entitled to a refund equal to eight months of unused coverage. Let’s say your annual premium is $60. That works out to around $5 each month if divided by 12 months. If you are entitled to a refund for the unused eight months, the total amount would be $40.
Is It Possible to Get a Refund if I Never Used My Gap Coverage?
No. You are not eligible for a refund since you did not register a GAP insurance claim.
Can I Sue for a GAP Insurance Refund?
Yes, but before you start wrangling with the lender (who has nothing to do with your GAP insurance), contact your insurance company. Without the need for a lawsuit, the insurance company may be able to provide a refund. Make sure you maintain all phone calls and written, and email correspondence records.
Is It Possible to Get a Gap Insurance Refund if I Refinance My Car Loan?
You’ll pay off your automobile faster if you refinance the proper way, with a shorter loan period (and perhaps a lower interest rate). As a result, you may no longer require GAP insurance, or you may be able to get rid of it sooner than you would have if you had not refinanced. Examine your loan documentation to determine whether GAP insurance is still required. If you no longer require it, contact your insurance agent for assistance in obtaining a refund for the unused payment.
How to Get a Gap Insurance Refund Following a Trade-in
If you are trading your car for another, the same refund rules apply. Expect to provide confirmation to your insurance carrier that you have traded in the vehicle and completely paid off the loan.
Can You Obtain a Refund for Gap Insurance After a Total Loss?
If your automobile is declared a total loss and your gap coverage pays the difference between what you owe on your car loan or lease and the car’s real cash worth, you will not be eligible for a gap refund for the remaining months of your policy.
Can You Obtain a Gap Insurance Refund From Your Dealership?
If you acquired gap insurance from a dealer, you have the same right to a refund as if you bought it from an insurance company or lender/bank, as long as you haven’t already received a gap claim reimbursement and the policy is still active.
Some dealerships include the cost of gap insurance in the cost of a vehicle loan offered by the dealership.
How Long Does a Gap Insurance Refund Take?
Refunds for gap insurance often take 4-6 weeks. However, keeping in touch with your gap insurance provider and promptly returning signed documents can help to speed up the process.
Summary
It shouldn’t be difficult to cancel your gap insurance and receive a refund. The greatest thing you can do for yourself is to thoroughly study the policy before signing anything, and then retain all essential papers in case of any payment or cancellation questions.
You should also be aware that if you choose to cancel your insurance, you may be charged a cancellation fee, which varies based on your provider and the type of coverage purchased.
If you have any questions about whether or not you need gap insurance, contact your insurer. If they include it as part of their typical insurance packages, they should be able to give you a decent indication of what the policy covers and how much it will cost. So, if they do not, consider purchasing a separate coverage from a different provider.
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