Gap Insurance: Requesting From Dealers

When buying a new car, gap insurance is often required by your lender to cover the difference between the depreciated value of the car and the loan amount owed if the car is involved in an accident. While you can request gap insurance from your car dealer, it is not mandatory to buy it from them. Before committing, it is advisable to shop around and compare the cost of gap insurance from your dealer with that offered by traditional insurers, banks, or credit unions. This is because gap insurance from a dealership is typically more expensive and the cost is added to your loan balance, resulting in interest payments.

When to request gap insurance from a dealer

Gap insurance is an optional auto insurance coverage that helps you pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It covers the difference between what you owe on your car loan and the car's depreciated value.

You should consider requesting gap insurance from a dealer when you are buying a new car and you know you will owe more on your car loan than the car is worth. This could be because you have made a small down payment, have a long finance period, or have purchased a vehicle that depreciates quickly.

For example, if you have made a down payment of less than 20% or you have financed your loan for 60 months or more, the "gap" between what you owe and what the car is worth can be thousands of dollars. In this case, requesting gap insurance from a dealer when you buy your car can be a good idea.

However, it's important to note that you don't have to buy gap insurance from a dealer. You can also get it from your auto insurer or a bank or credit union. Gap insurance from a dealership can be more expensive, with costs ranging from $400 to $700, plus interest. On the other hand, gap insurance from your car insurance company will likely cost around $20-$40 per year.

Therefore, it's a good idea to shop around and compare the coverage details and prices of dealership gap insurance with your other options before deciding where to purchase it.

How much gap insurance costs at a dealership

The cost of gap insurance depends on where you buy it. Dealerships and banks charge a lump sum of up to $700 for gap insurance, making them the most expensive choice. Since the sum is usually added to your auto loan, you will have to pay interest on it, too.

Gap insurance costs between $400 and $700 when purchased from a dealership and between $20 and $40 per year when added to a car insurance policy. If you add gap coverage to a car insurance policy that already includes collision and comprehensive insurance, it typically increases your premium by around $40 to $60 per year.

The average gap insurance cost when adding it onto your auto loan is between $500 and $700. This is a one-time flat rate rather than a regular payment.

Standalone gap insurance policies are also available from some auto insurers. The average cost of this type of policy is a one-time fee of $200 to $300.

How to cancel gap insurance from a dealer

To cancel gap insurance from a dealer, you should follow these steps:

• Find your original gap insurance contract. If you can't find it, contact the dealership and request a duplicate.
• Read through the contract to understand the terms of your agreement and identify the specific office or person to contact if you plan to cancel your policy.
• Contact the insurance company or the dealership's finance manager to initiate the cancellation process. They may require you to fill out a gap insurance cancellation form and provide written notice of your intent to cancel.
• Before completing the cancellation form, carefully consider your situation. Gap insurance provides financial protection in case your car is declared a total loss after an accident. If you still have an outstanding balance on your auto loan, weigh the risks and benefits of cancelling the policy.
• If you decide to proceed with the cancellation, ensure you have an alternate insurance policy in place to avoid any lapse in coverage.
• Provide your current contact information, especially your updated address, to ensure you receive any refund or correspondence regarding the cancellation.
• Follow up on the cancellation process if it takes longer than expected. This helps ensure that your request is being processed and that you receive any refund owed.
• Be patient and allow a few months for the insurance company to process your refund. If you don't receive the refund within a reasonable timeframe, contact the insurer to confirm the cancellation.

Pros and cons of dealership gap insurance

Dealership gap insurance is an optional auto insurance coverage that helps pay your car loan if your car is lost or stolen and you owe more than the vehicle is worth. It is called "gap" insurance because it covers the difference between the compensation you receive after a total loss of your vehicle and the amount you still owe on a car loan.

Pros

• Dealerships may argue that buying gap insurance from them means you don’t have to worry about your rates going up or your policy being cancelled if you file a claim.
• Dealerships may also say they will cover your deductible while an insurer won’t, or that an insurer will only pay a portion of your loan.
• Dealership gap insurance is usually included when purchasing a vehicle, and it can be more convenient to buy it from the dealership than from an insurance company.

Cons

• Dealership gap insurance typically costs much more than gap coverage from an insurance company, bank, or credit union.
• The cost of dealership gap insurance is usually added to your loan balance, meaning that you have to pay interest on it.
• Since you normally don’t need gap insurance for more than a few years, paying extra for dealership gap coverage isn’t usually worth it.
• You may not be able to cancel gap insurance if you bought it from a dealership and the cost is rolled into your car loan.

How to get a refund from a dealer for gap insurance

Getting a refund for GAP insurance from a dealer is a straightforward process, but there are a few things to keep in mind. Here is a step-by-step guide on how to get a refund from a dealer for GAP insurance:

Step 1: Understand the Criteria for a Refund

Before initiating the refund process, it's important to ensure that you meet the criteria for a GAP insurance refund. You can get a refund if you paid in advance for coverage and cancel the policy early. Refunds are commonly issued when you pay off your loan early, switch insurance providers, or sell or trade in your vehicle. It's important to note that you won't receive a refund if you have filed a claim against the policy or if your vehicle is declared a total loss and the GAP policy has paid out.

Step 2: Contact the Dealer

The first step in requesting a refund is to reach out to the dealer from whom you purchased the GAP insurance. Inquire about the proper procedure for requesting a refund and consult your contract for any specific requirements or additional paperwork that may be needed. Be sure to have an active replacement policy in place before cancelling your current policy to avoid any lapse in coverage.

Step 3: Provide Necessary Information and Documentation

The dealer or their insurance provider may require you to provide certain information and documentation to process your refund request. This may include proof that your vehicle was sold, traded, or paid off, as well as verification of your car's current mileage. You may also need to provide your updated contact information, especially if you have moved to ensure the refund is sent to the correct address.

Step 4: Complete and Submit any Required Forms

The dealer or their insurance provider will likely have specific forms or paperwork that you need to complete and submit to process your refund request. Make sure to fill out all the required fields accurately and provide any necessary signatures.

Step 5: Follow Up on the Status of Your Refund

After submitting your refund request and required documentation, follow up with the dealer or their insurance provider to confirm receipt and check on the status of your refund. It typically takes a few weeks to process and receive a refund, but the timing may vary depending on the dealer and their policies.

It's important to note that the process for obtaining a GAP insurance refund may vary slightly depending on the dealer and their specific policies. Be sure to carefully review the terms and conditions of your GAP insurance policy and don't hesitate to ask the dealer or their insurance representative if you have any questions or concerns.

Frequently asked questions