What to Know
- GAP insurance may be required on a new vehicle purchase
- GAP insurance pays the difference between what you owe on a car and what it is actually worth
- You may receive a refund on your GAP insurance is certain circumstances, like paying off your car early
GAP insurance, also known as Guaranteed Auto Protection, is an optional yet important addition to your car insurance coverage. It’s good to know that you will be eligible for a GAP insurance refund in certain situations.
Even if you’re covered by the best car insurance companies, GAP insurance will be very beneficial to you in case of an accident.
Essentially, GAP insurance coverage protects you from being personally liable in the event of an accident with a totaled car and covers the total loss of the vehicle.
When it comes to GAP insurance, the question many ask is: is GAP insurance refundable? Because GAP insurance is often paid upfront at the dealership or with your lender, a GAP insurance refund may be issued for any unearned portion of the coverage.
Sometimes drivers are eligible for a GAP insurance refund when their car is traded in or sold.
In this guide on how to get a GAP insurance refund, we’ll go over the GAP insurance refund policy, and we’ll also teach you how to calculate your GAP refund or cancel your GAP insurance.
It’s important to note that if you pay your GAP insurance in monthly installments, you are not entitled to any refund.
Before diving into our GAP insurance refund guide, enter your ZIP into our free online tool to find car insurance quotes in your area including GAP insurance.
- GAP Insurance and Refunds
- How To Cancel Your GAP Insurance Policy and GAP Refunds
- How To Buy GAP Insurance and Where To Purchase
- Full Coverage vs. GAP Insurance: Consideration For Your GAP Insurance Policy
- Compare Car Insurance Quotes and Coverage
- Frequently Asked Questions – GAP Insurance Refund
GAP Insurance and Refunds
How does GAP insurance work?
The best and simplest way to explain exactly how GAP insurance works is to consider a hypothetical scenario. In it, you have just purchased a new car for $50,000, and you have been driving it for about six months.
Then, one day on your way home, you are involved in an accident, resulting in a significant amount of damage to your car. Later, your insurance company says you have a totaled car, which means that even with repairs, the car is no longer safe to drive.
At this point, once your insurance company determines that your car is a total loss, you know that the company will give you a check, allowing you to either pay off the value of your auto loan or buy a new car.
Many drivers are surprised when they see that check. Even though you paid $50,000 for your car, and even though it’s only a few months old and you still owe $48,000 on it, your insurance company only gives you $40,000 – which is the actual cash value of the car before it was wrecked.
Unfortunately, this amount is not enough to repay the loan or buy the same car in the same model year.
Now, assume for a moment that you also purchased GAP insurance along with full coverage car insurance. After your accident, rather than writing you a check for only $40,000 (the depreciated value of your vehicle), you will get the full $48,000, or the amount you still owe.
You will then take a portion of the payout and pay off your auto loan, but the rest should work as a GAP insurance reimbursement, reimbursing you for your down payment and car payments.
This table will give you an idea of the cost of purchasing GAP insurance.
|Auto Lender||About $600 one time|
|Stand Alone Policy||About $300 one time|
|Add-on to your car insurance policy||About $30 a year|
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You can see that adding GAP insurance to your current policy is the cheapest option.
Check out the following video for another quick explanation of how GAP insurance works.
True to its name, this sort of auto insurance policy is designed to bridge the gap between your car’s depreciated value and the amount you still owe.
How long does it take for GAP insurance to pay?
Depending on the circumstances around the total loss, it can take an insurance company up to 30 days to pay out on your GAP insurance coverage.
During this time, you will want to regularly follow-up with your agent or representative to check on the process of your claim and provide all paperwork as quickly as possible. It is often best not to give the dealer, lender, or your insurer any excuses to prolong payment of your claim.
Can you get a GAP insurance refund after a total loss?
If you are using your GAP insurance to pay off your lender because of a total loss accident, then you may be wondering if the rest of your GAP coverage rates may be refundable. Unfortunately, policyholders are not due a GAP insurance refund after a total loss.
Can you get a GAP insurance refund after paying off the loan?
Most drivers don’t even know about GAP refunds. So, how does a GAP insurance refund work? If you have GAP insurance and pay off your car early, you may be eligible for a GAP insurance refund.
For example, GAP coverage at the dealer or with a lender is paid upfront and in advance. This protection covers you for the term of the loan until it is paid off.
How do you get your money back from your GAP insurance coverage policy?
If a vehicle is financed for 60 months (five years) but is paid off in 36 months (three years), 24 months (two years or 40 percent) worth of rates are due back and must be refunded. Similarly, if a car owner sells or refinances the vehicle, he or she is warranted a GAP insurance refund after payoff, refinancing, or selling.
While some lenders will automatically get a notification of your pay off, sale, or refinancing and send you a check for the refund, others may not. It is your responsibility to follow up with the finance company to make sure you get your GAP refund.
You may also be eligible for a GAP insurance refund after the trade-in of your vehicle. In most cases, you would not be eligible for a GAP insurance refund after repo of your car.
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How To Cancel Your GAP Insurance Policy and GAP Refunds
Sometimes situations arise that leave drivers with GAP insurance to ask: can I cancel GAP insurance?
Yes, but if you want to cancel your GAP insurance, remember that some dealerships or banks may require it for a certain amount of time as part of your loan’s terms. If you cancel it, your monthly payments may skyrocket, or the lender may consider your loan in default.
Otherwise, to cancel your GAP insurance, simply call the company providing you with the insurance and request the cancellation.
Most companies will give you a full GAP cancellation refund if you cancel within a certain period of time, which is usually between 30 and 90 days. If you cancel after this time has passed, you will instead be eligible only for a refund that has been prorated according to the length of time the policy has been in effect.
On the other hand, if you have completely and successfully paid for your auto loan in full, then you will no longer need GAP car insurance. To cancel it, gather the documents that provide proof your loan was paid off completely and then contact your GAP insurance company to request the cancellation.
Regardless, we recommend reaching out to your GAP insurance company to discuss your GAP insurance cancellation rights.
When should you cancel GAP insurance?
Although some dealerships or banks may require GAP insurance for a time, some may allow you to cancel early. We recommend waiting until you’ve paid your loan completely, or until you owe around $2,000 less than what your car is worth online.
You should reach out to your GAP insurance company in one or more of their preferred communication methods. You may be provided with a GAP insurance refund phone number to call. When writing a letter to your company, the GAP insurance cancellation letter example should include:
- The date on which the letter is written
- Your name and address
- The company’s name and address
- Your GAP insurance policy number
- Your written statement including the termination date
Be sure to be clear and concise in your letter about when you would like your policy to be canceled, when you expect a confirmation, and that you expect a refund if you are eligible.
How long does it take to get a GAP insurance refund?
Not all insurance providers will automatically send your refund, so you may have to ask them to send it to you. There’s usually a 30-day waiting period before the insurer will mail your check, so you can expect your refund to take about 4 to 6 weeks to arrive.
We recommend discussing with your insurance company the details of your GAP insurance refund so that you know how to claim a GAP insurance refund correctly.
Should you get GAP insurance?
Is GAP insurance worth it?
GAP insurance is ideal for anyone who owes more on his or her car loan than the vehicle is actually worth. This is why it’s also referred to as Loan-Lease Payoff Coverage.
Unless you put a large down payment on your car, you will likely be upside down on your loan the moment you leave the dealership. This is actually quite a common occurrence since automobiles tend to depreciate rather quickly once they leave the lot, even if they’re brand-new.
GAP coverage is designed to cover the difference between the depreciated value of your car and what you actually owe on that car. You might be surprised at the difference; sometimes, it can be several thousand dollars that you would otherwise have to pay out-of-pocket to your lender after a total loss.
You can use a website such as Kelley Blue Book to determine the value of your vehicle to see if you still owe more than your car is worth.
How To Buy GAP Insurance and Where To Purchase
Depending on where you live, you can purchase GAP insurance for your new car in three different ways.
- Bank or Lender – In order to mitigate risk and ensure that you do not default on your loan, some banks may charge you for GAP insurance and add the rate to the total value of your loan. Be aware that banks and finance companies often charge quite a bit more than the best car insurance companies.
- Dealership – If you financed your car directly through the dealership, there’s a good chance the dealer will also sell you GAP insurance; and they may even require it. Unfortunately, you will likely pay far more for the insurance than if you had purchased it on your own. Dealerships tend to have higher GAP insurance rates than most carriers or even your bank.
- Your Auto Insurance Company – The absolute best way to add GAP coverage to your existing auto insurance policy is through your current insurer. You’ll only pay about $5 more per month, on average, which is quite affordable, and your insurer will simply add the premium to your existing rate.
Buying GAP insurance from your current insurer is the cheapest way to go. This also gives you the option of taking off the coverage when you are ready.
Do you have to buy GAP insurance from the dealer?
No, you don’t have to buy GAP insurance from a dealer.
If you’re ever debating whether to buy GAP insurance through a dealer or insurance company, always choose to buy it through your own insurer.
If the dealer requires you to purchase GAP coverage before leaving the dealership with your vehicle, then cancel the GAP insurance from the dealer after you have proof you’ve added it to your existing policy.
Can you remove GAP insurance from your car loan?
There are many factors that will go into removing GAP insurance from your car loan, including how much you owe on your car and if you are required to carry coverage from your lender.
The most important item is to make sure you are covered by another company if you are still required to carry GAP insurance. Allowing a lapse in coverage can affect your loan.
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Full Coverage vs. GAP Insurance: Consideration For Your GAP Insurance Policy
If you have traditional full coverage insurance, the GAP insurance refund check you receive covers your car’s depreciated value, which can be quite a bit lower than the initial purchase price since cars depreciate so very quickly.
To put this into perspective, the value of most automobiles drops by 9 to 11 percent on the very first day after purchase.
Unfortunately, without GAP insurance, you would be responsible for paying the difference between the value of your car and what you still owe on your loan.
On the other hand, if you opted to purchase GAP insurance (or if it was included in your insurance policy), you would receive a check for the amount of money you still owe your bank or lender.
This is exactly what GAP insurance policies were designed to do; they bridge the gap between your auto’s value and your loan’s value to reduce potential out of pocket costs.
Compare Car Insurance Quotes and Coverage
If you’re looking to lower your car insurance rates or don’t think you are currently getting the cheapest rates or best coverage from your current insurer, it may be time to compare car insurance quotes online.
The best auto insurance companies are always competing for new business, and the only way to know if you are getting a good deal is to shop around. Even if you don’t plan on changing carriers, sometimes having a competing quote from a rival company can encourage your existing provider to give you cheaper rates.
Still on the fence about purchasing GAP Insurance or are you paying too much for your rates? Just enter your ZIP into our free online tool to see providers in your area and get a free, instant quote including GAP coverage.
Frequently Asked Questions – GAP Insurance Refund
Keep reading for answers to some commonly asked questions about getting a GAP insurance refund.
#1 – Can you cancel GAP insurance from the dealership?
Yes. To cancel GAP insurance, you have to contact your GAP insurance company. If you decided to buy GAP insurance through your dealership when purchasing or leasing your vehicle, you would do that through the dealership.
#2 – Can you cancel GAP insurance on a new car?
Depending on your dealership or lender, you may have to wait a certain period of time after purchasing a new car before canceling your GAP insurance.
#3 – How much will you get back from GAP insurance?
You are eligible to receive back any unearned portion of your GAP insurance coverage. For example, if you finance a car for five years but pay it off in two years, your GAP insurance company will refund you for three years worth of rates.
However, if you total your car, you are, unfortunately, not due to a GAP insurance refund after a total loss. A GAP insurance refund calculator may help determine what you are owed.