Gap Insurance Refund: Calculating Your Return

If you've paid for gap insurance upfront and then paid off your car loan early, you can get a refund on the unused portion of the policy. The amount of the refund will depend on how far into the policy you are when you cancel it. To calculate the refund, divide the total cost of the insurance by the number of months of coverage, which will give you the monthly premium. Multiply this by the number of months left on the policy and that will give you a good idea of how much your refund will be. However, insurance providers have different processes so you'll need to confirm the amount with them.

Paying off your loan early

If you pay off your car loan early, you may be able to get a refund on your gap insurance policy. This is because gap insurance covers the "gap" between what you owe on your car loan and the depreciated value of your car if it is written off due to a problem covered by your policy, such as a car accident. Therefore, if you pay off your loan early, you no longer need this coverage and can get a refund on the premium you already paid.

To get a refund, you will need to cancel your gap insurance policy. The first step is to contact your insurance agent or company and let them know that you want to cancel. They will provide you with the necessary paperwork, which may include a request for information such as proof that your vehicle was sold, traded, or paid off, and verification of your car's current mileage.

It's important to note that you will only be eligible for a refund if you have paid for your gap insurance coverage in advance. If you pay monthly, you may only get a small refund, or no refund at all, depending on when you cancel in the month. Additionally, you will not be eligible for a refund if you have filed a claim against the policy.

The amount of your refund will depend on the cost of your gap insurance premium and how long is left on your current policy. To calculate the refund, take the total cost of your gap insurance and divide it by the number of months of coverage. Then, multiply the monthly premium by the number of months left on your policy. This will give you the amount you can expect to receive as a refund.

For example, if you paid $1,000 for a policy valid for 36 months and you repay your vehicle loan in full after 20 months, you will get a refund from your gap insurance provider for the 16 months remaining in the policy term. This would be roughly $444.

Switching insurance companies

Step 1: Shop for New Rates

It's recommended to start shopping for new rates at least 30 days before your current policy's renewal date. This allows you to make an informed decision without feeling rushed. Try to get quotes from at least three different insurers to ensure you're getting a good deal. When comparing quotes, pay close attention to the coverages, limits, and deductibles offered, as these can vary significantly between insurers. Affordability is important, but it's also crucial to consider how well the new insurer handles claims and whether they offer 24/7 availability.

Step 2: Finalize and Purchase the New Policy

Once you've found a suitable insurer, finalize the details and purchase the new policy. It's essential to ensure there's no gap in coverage between your old and new policies. If possible, schedule the new policy to begin at least one day before your current coverage expires. This way, you avoid any lapse in coverage, which could lead to higher rates in the future. Remember to list your lender on the new policy if you have an auto loan or lease.

Step 3: Cancel Your Old Policy

After purchasing the new policy, contact your previous insurer to cancel your old policy. It's typically your responsibility to initiate the cancellation. Your new insurance company may be able to provide proof of insurance to your old company if needed, but they usually can't cancel the policy on your behalf. You will likely receive a refund for any unused portion of your old policy, minus any cancellation fees that may apply.

Step 4: Notify Your Car Lender

If you have a loan or lease on your car, it's crucial to inform your lender of the change in insurance. Once you cancel your old policy, a notice will be sent to your lender, and they need to know that you still have active coverage with the new insurer. This step is important to prevent any issues with your loan/lease agreement, as maintaining car insurance is typically a requirement.

Step 5: Get Your Proof of Insurance

Obtain your new insurance ID card, either by printing it out or downloading it to an app. In most states, you're allowed to show a digital ID card if you're pulled over. However, ensure you have offline access to the digital ID in case you don't have cellular service.

Additional Considerations:

• Be aware that switching insurance companies frequently may lead insurers to view you as a higher risk, and they may be less generous with discounts.
• If you have an open at-fault claim, inform your new insurer to avoid surprises with rate increases later on.
• Check with your current insurer about any cancellation fees or loyalty discounts you may be eligible for before making the switch.
• Review your coverage periodically, especially if your life circumstances change (e.g., moving, adding a new driver, changing your driving habits).

By following these steps, you can switch insurance companies confidently, ensuring continuous coverage and making informed choices about your insurance needs.

Selling or trading your car

If you sell or trade in your car, you can get a refund on your gap insurance. This is because you've paid for coverage that you no longer need. To get a refund, you must have paid for your gap insurance in advance and not have filed a claim against the policy.

The first step to getting a refund is to contact your insurance agent or company and inform them that you want to cancel your policy. They will provide you with the necessary paperwork and let you know what other information is required. Most insurance carriers will need to see an odometer disclosure statement verifying the car's current mileage, which you can obtain for free from your state's DMV website. If you've paid off your auto loan, your insurance company may also request a letter from your lender verifying that the loan has been closed.

Once you've submitted all the necessary paperwork and documentation, you should receive your refund. Most insurance companies will give you the option of receiving your refund as a physical check or via direct deposit.

It's important to note that you should only cancel your insurance policy after the car is legally sold or traded. Additionally, you have to ask for a gap insurance refund—most insurance companies will not offer them automatically. The time it takes to receive your refund may vary depending on your insurance provider, but you can typically expect it to take a few weeks.

Calculating the refund amount

The amount of your refund is based on how you pay your insurance bill. If you pay monthly, you won't get a refund, as you've only paid for the coverage you've received so far. If you pay your insurance in a lump sum, the amount of your refund will depend on how far into your coverage you were when you cancelled your policy.

To calculate how much of a refund you'll get if you paid for the GAP policy upfront, you divide the total cost of the insurance by the number of months you had coverage. This gives you your monthly premium. Once you know the monthly premium, you can multiply it by the number of months left on your policy. That number is a good indicator of how much your refund should be, but all insurance providers have different processes, so you'll need to confirm the amount of your refund with them.

For example, if you paid $1,000 for a policy valid for 36 months, your gap insurance monthly payments would be about $27. If you repay your vehicle loan in full after 20 months, you'll get a refund from your gap insurance provider for the 16 months remaining in the policy term, which is roughly $444.

In another example, 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. If your annual premium is $60, divided by 12 months, that would equate to a monthly cost of about $5. If you are eligible for a refund of the unused eight months, that would total $40.

If you pay monthly, you may get a small refund if you cancel early in the month.

Requesting a refund

To request a refund on your GAP insurance, you must first ensure that you are eligible. There are typically three situations in which you can cancel your GAP insurance and get a refund:

• Paying off your loan: If you pay off your car loan early, you may be eligible for a partial refund for the GAP coverage that you haven't used yet. This is because you've already used a portion of your GAP insurance policy while your loan was still active, so you'll only get back a prorated refund for the unused portion.
• Switching insurance companies: If you're not satisfied with your current insurance provider, you can switch to a different company. If you cancel your policy within 30 days of its start date, you may get a full refund, including GAP insurance costs. Cancelling after 30 days will usually result in a prorated refund, but this may vary depending on your insurance provider, so be sure to check their policy.
• Selling or trading your car: If you sell or trade in your car, you can get a refund on the amount of GAP coverage you didn't use. Make sure to wait to cancel your insurance until the car is legally sold or traded.

It's important to note that there is one situation in which you cannot get a GAP insurance refund. 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 balance, you won't be eligible for a refund for the remaining months of coverage. This is because the insurance provider considers their obligation for the GAP coverage to be met or exceeded.

To initiate the refund process, contact your insurance provider and inform them that you want to cancel your GAP insurance and request a refund for the remaining coverage. They will guide you through their specific process and let you know what documentation is required. Be prepared to provide proof that your vehicle was sold, traded, or paid off, as well as verification of your car's current mileage.

Most insurance companies will require you to fill out and submit cancellation and refund forms, along with supporting documents, to complete the process. Remember that you need to have paid for your GAP insurance upfront to qualify for a refund. If you paid monthly, you may still get a refund, but it will likely be much smaller, or there may be no refund at all.

The amount of your refund will depend on how far into your coverage you are when you cancel your policy. If you paid a lump sum for your GAP insurance, you can calculate your expected refund by dividing the total cost of the insurance by the number of months of coverage. This will give you your monthly premium. Multiply this amount by the number of months left on your policy to estimate your refund. However, it's important to note that all insurance providers have different processes, so be sure to confirm the amount of your refund with them.

Frequently asked questions