How to Cancel a GAP Insurance and Get a Refund?

When you purchase an expensive item, insurance might be a smart investment to go with it. That goes for cars, too. You might want to add GAP insurance to your coverage after finding out all about it. Keep reading to learn everything you need to know about GAP insurance, the cancellation process, and refunds.

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What Is GAP Insurance

GAP is an abbreviation that stands for Guaranteed Asset Protection. GAP insurance is a type of car insurance that saves you in case you badly damage your car. As everyone knows, cars are quite expensive to buy. Because of that, many people choose to lease their cars and pay them off step by step, the same way you would pay off a house. However, unlike property, a car’s value depreciates almost immediately after purchase. That means that once you drive off in your brand-new car, its resale value is immediately lower than the amount you bought it for.

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That’s not great when it comes to insurance claims. Most types of insurance will cover the cost of the repairs considering the vehicle’s market value at the time of the accident. So, if you’re still paying off your car, you might end up in quite a bit of debt, especially if your car has damage beyond repair. In that situation, GAP insurance will come to the rescue and cover the difference between what your regular insurance would cover and your outstanding debt on the car. 

What Does GAP Insurance Exclude?

GAP insurance can get you out of debt in case of bad damage to your car. However, it’s important to note that it doesn’t cover every type of damage. In fact, GAP insurance has very specific terms and conditions, which you will learn about when you sign the contract with your insurance agent. To make that process easier, here are some things that GAP insurance does not cover:

  • Car repairs;
  • The cost of a rental car until your car is fixed;
  • Payments in case your car has been repossessed; and
  • Payments for people struggling with unemployment, disability, or financial problems.

If you decide to get a new car, your existing GAP insurance will not help you with a down payment or provide any warranties. Even though GAP insurance can be very helpful, it doesn’t cover all types of automobile accidents.

When Should You Cancel Your GAP Insurance?

GAP insurance is helpful, but it’s not the type of insurance you will need for the rest of your, or your car’s, life. Once the loan amount has fallen below the market value of the vehicle, insurance is no longer necessary. At that point, you can end your GAP insurance contract because it will no longer serve you. You should also do the same if you ever decide to sell your car or dispose of it in any other way. Make sure you wait until after the sale to reach out to your GAP insurance provider and cancel the contract. 
You should also have nc bill of sale for car that addresses all the safety requirements, including GAP insurance, to protect yourself and make the process of getting a refund smooth.

What Is a GAP Insurance Refund?

After you’ve paid off your car, you no longer need GAP insurance. At that point, it makes sense to cancel the insurance and get a refund. While a full refund is rare, a partial refund is almost always on the table. If you’ve paid your insurance in advance, you can get a refund at the time that you won’t need the insurance anymore. If, however, you pay a monthly fee, you will most likely get no refund for the remainder of the month. In some cases, if you’ve announced that you don’t need the insurance anymore pretty early in the month, you can get a small partial refund for that month.

When You Can Get a GAP Insurance Refund

You can get your GAP insurance refund if you act fast. The faster you tell your GAP insurance company that you’ve paid off your car, the bigger the refund will be. The rest depends on your personal GAP insurance policies. For example, if you paid in advance for a few months, you can get most of that money back with relative ease. If, on the other hand, you pay car insurance fees monthly, you might not be offered a refund for the month you already paid for. Remember to update your insurance agent as soon as you pay off your car. That will make their job a lot easier and give you a greater chance of getting a refund.

How to Get a GAP Insurance Refund

The GAP insurance cancellation process is relatively simple. Before you decide to cancel your GAP insurance and ask for a refund for the remaining months, make sure you paid off your car, or you officially sold it. Then, you can follow these steps to find out how to cancel GAP insurance:

  1. Contact your insurance agency. Share all the details of your GAP insurance coverage with the agent and inquire about initiating the refund process. Don’t forget to clearly state that you want a GAP insurance refund. Remember to do this only after you pay off the car. 
  2. Provide legal documentation. The insurance agent will ask for some documentation proving you paid the car off or sold it. They will also direct you to certain forms you need to fill to officially initiate the cancellation process. Provide all documentation as quickly as possible to avoid delays in the process.  

How to Calculate a GAP Insurance Refund

Calculating your GAP insurance refund is an easy task for anyone who has a calculator. All you need is a copy of your insurance policy. Find the number of months your insurance covers, the expiration date, and the final amount that you paid. Divide the final amount by the number of months. Then, multiply the resulting number by the number of months left in your insurance policy. Here is an example:

Let’s say the insurance covered 10 months and the total price was $500. There are five months left in your insurance policy. If we divide $500 by 10, we get $50. Then, we can multiply $50 by 5, which gets us $250. That means you are entitled to a refund of $250 for the five months left in your insurance policy. 

When You Cannot Get a GAP Insurance Refund

Though GAP insurance refunds are generally not difficult to obtain, you’re not always eligible for one. Luckily, there are only two situations in which you cannot get a refund. Here are the two most common situations:

  1. It took you the exact number of months your insurance covered to finish paying off your car. It means you don’t need to go through the hassle of canceling or renewing your GAP insurance or requesting a refund. Of course, you’re not eligible for one because you used all the time you had covered by insurance.
  2. Your car has been totalled and the insurer has covered the difference. In this case, you probably had a terrible accident and now you no longer have a car. The good news is the insurance company has given you the difference between the current market value of the car and the amount you still owe to the car dealer or financial institution that loaned you the money. Even if there are still months of coverage left, you are no longer eligible for a refund. That’s because you already received your insurance coverage in full.

GAP Insurance Refund FAQs

Why should I get GAP insurance?

That’s a great question, because GAP insurance is not suitable for every car owner. GAP insurance is suitable for lease payments, so you should consider it if you’re leasing your car. The same goes for cars that have an unusually fast depreciation rate. You should definitely look into GAP insurance if your down payment was smaller than 20 percent of the final cost. Both the purchase price and the monthly payments will rack up, so you don’t want to risk adding another expense on top of that. Finally, if you’re going to take more than 60 months to pay it off, look into GAP insurance. 

Why should I not get GAP insurance?

Though you’re always better safe than sorry, sometimes the prospect of eventually having to deal with a dealership GAP insurance refund and cancellation is just too daunting, especially when you don’t even need the coverage to begin with. The first sign you might not need GAP insurance is that your down payment was more than 20 percent of the price. That means it’s highly unlikely that you’ll find yourself in a position where you owe more than the car is worth. Similarly, if you’re set on paying off your loan in five years or less, you likely can’t use the insurance anyway. 

How is GAP insurance cost calculated?

If you’ve ever gotten your car insured, you must have a pretty good idea of how the insurance company calculates the premium. Usually, they will base it on your age, your history with insurance claims, the cost of the car, and other factors that might influence the situation. Of course, the size of the premium will also depend on your location.

Conclusion

Buying GAP insurance is a smart move, especially because you will never lose the money you put in. If you find yourself not needing the insurance anymore, you can get a refund on the coverage you haven’t used. Simply reach out to your insurance agent and describe your situation.

Article by Megan Thompson

Megan Thompson is a legal writer at Lawrina. Megan writes about different law practice areas, legal innovations, and shares her knowledge about her legal practice. As a graduate of the American University's Washington College of Law she is an expert of law in Lawrina's team and has a slight editing touch to all content that is published on the website.

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