Gap Insurance: Refundable Or Not?

Gap insurance covers the difference between what you owe on your car loan and the depreciated value of your car if it is totaled or stolen. This type of insurance is especially useful if you have taken out a loan to purchase a new or used vehicle, as cars can lose over 10% of their value in the months following a purchase. If you pay upfront for gap insurance and then pay off your loan early, you may be eligible for a refund on your unused gap insurance. However, if your car is declared a total loss and your gap insurance policy pays out, you won't be eligible for a refund on the remaining months of coverage.

When to expect a refund

Paying Off Your Car Loan Early

If you pay off your car loan early, you are eligible for a partial refund for the unused GAP coverage. This is because you've already used a portion of your GAP insurance while your loan was active, so the refund will be prorated for the unused portion.

Switching to a Different Insurance Company

If you switch to a different insurance provider, you can cancel your existing GAP insurance policy and receive a refund for the cancelled coverage. Typically, if you cancel within 30 days of the policy start date, you can get a full refund, including GAP insurance costs. If you cancel after 30 days, your refund will be prorated.

Selling or Trading Your Car

If you sell or trade in your car, you can cancel your GAP insurance and receive a refund for the unused coverage. It is important to wait to cancel your insurance until the car is legally sold or traded.

When Your Loan Amount is Less Than Your Car's Value

If the amount left on your loan is less than your car's current worth, there is no longer a "gap" between the loan and the car's value. In this case, you can cancel your GAP insurance and receive a refund for the unused portion of the policy.

Cancelling Before the Policy Period Expires

Insurance companies may have specific cutoff deadlines for GAP insurance refunds, but typically, you can qualify for a refund at any point before the policy period expires. For example, if you purchase a 36-month policy but cancel after 24 months, you may be able to request a refund for the remaining 12 months.

Cancelling Without Filing a Claim

If you cancel your GAP insurance policy early without filing a claim, you may qualify for a refund. However, if your vehicle is totalled or stolen and you need to use the GAP insurance to cover your losses, you won't be eligible for a refund.

Cancelling Without a Deadline Expiring

In most cases, you have the right to cancel your GAP insurance and request a refund for unused coverage. However, there are scenarios where you may not be eligible for a refund, such as if your policy has expired or if the deadline for making a claim has passed.

Cancelling After Receiving a Dealership Refund

If you purchased GAP insurance from a dealership and are entitled to a refund, the insurance company that works with the dealership will process your refund. This process should be similar to cancelling a policy purchased directly from an insurance carrier or lender/bank.

Cancelling After Refinancing Your Car Loan

If you refinance your car loan and no longer need GAP insurance, or if you can get rid of it sooner due to a shorter loan term, you may be able to cancel the policy and receive a refund for the unused portion.

It's important to note that the specific conditions for receiving a GAP insurance refund may vary depending on your insurance provider and your individual policy. Be sure to review your policy carefully and contact your insurance company or agent to understand their specific requirements and processes for obtaining a refund.

When you won't get a refund

If you are no longer servicing a loan on a car, you may want to cancel your gap insurance and get a refund. However, there are some scenarios in which you won't be eligible for a refund.

When You Won't Get a Gap Insurance Refund

You won't qualify for a refund on your gap insurance if your car is deemed a total loss and your insurance company pays the difference between what you owe on your car loan and the car's actual cash value. In this case, you will need to use the policy to cover your losses.

You also won't get a refund if your gap insurance policy has expired or if the deadline by which you must make a claim has passed, as detailed in your policy. Additionally, if you haven't paid your gap policy premium, you won't be eligible for a refund.

It's important to note that if you pay your gap insurance premiums monthly, you won't be able to get a refund on previous months. However, you may get a small refund if you cancel early in the month. On the other hand, if you pay a lump sum upfront, you are more likely to get a refund on the unused money spent on coverage later.

How to get a refund

If you have paid for gap insurance upfront and cancel the policy early, you may be eligible for a refund on the unused portion of the cover. Here is a step-by-step guide on how to get a refund:

Check your eligibility:

Before initiating the cancellation, confirm that you meet the criteria for a refund. You need to have paid for your gap insurance coverage in advance, and the policy should not have expired. You also cannot get a refund if your car was totalled and the gap insurance policy paid out.

Contact your insurance provider:

Get in touch with your insurance company and inform them that you want to cancel your gap insurance policy and request a refund for the remaining coverage. Make sure you do this before your car is sold, traded, or your loan is paid off.

Prepare the necessary documents:

You will need to provide certain documents to your insurance company to process the cancellation and refund. These typically include a gap insurance cancellation form, a copy of an odometer disclosure statement, and proof that your vehicle was sold, traded, or paid off.

Submit the required forms and documentation:

Fill out and submit any forms and paperwork required by your insurance company to complete the cancellation process. Make sure to clearly state that you want a refund for the unused gap insurance coverage.

Receive your refund:

Once you have submitted all the necessary documentation, your insurance company will process your refund. The timing of the refund may vary, but it typically takes between four and six weeks to receive the money. You can choose to receive the refund via physical check or direct deposit, depending on the options provided by your insurance company.

How much you can expect

When it comes to Gap insurance refunds, the amount you can expect to receive will depend on several factors, including the terms of your policy, the timing of your refund request, and the reason for cancellation. Here's a breakdown of what you need to know:

Policy Terms and Conditions

The specific terms and conditions of your Gap insurance policy will dictate whether you are eligible for a refund and, if so, how much you can expect to receive. Carefully review your policy documents to understand the refund policy. Some providers offer pro-rata refunds, meaning you will get back a portion of your premium corresponding to the unused coverage period. Other providers may have a short-term fee or administrative charge associated with early cancellation.

Timing of Refund Request

The timing of your refund request can also impact the amount you receive. Many insurance companies will only provide a full refund if the policy is cancelled within a certain number of days from the start date, often referred to as a "cooling-off" period. For example, if you cancel within 30 days of purchasing the policy and have not made any claims, you may be eligible for a full refund. After this initial period, the refund amount may be prorated or subject to cancellation fees.

Prorated Refund Calculation

If your Gap insurance policy offers prorated refunds, the amount you receive will be calculated based on the amount of time remaining on your policy. Insurance policies typically cover a specific period, such as six months or one year. When you cancel, the insurance company will refund you for the whole months of unused coverage. For example, if you cancel halfway through a six-month policy, you may receive a refund for three months' worth of premiums.

Administrative or Cancellation Fees

In some cases, insurance companies may deduct administrative or cancellation fees from your refund amount. These fees vary depending on the provider and are typically outlined in your policy documents. It's important to be aware of these potential charges when considering cancelling your Gap insurance policy.

Reason for Cancellation

The reason for cancelling your Gap insurance policy can also impact the refund amount. For example, if you are cancelling because you sold or traded in your vehicle, the insurance company may prorate your refund based on the new owner's decision to continue or cancel the policy. On the other hand, if you are cancelling due to a mistake or error in the policy, you may be eligible for a full refund, even outside the typical refund period.

Remember that Gap insurance policies can vary significantly between providers, so it's essential to carefully review your specific policy details. If you have questions or concerns about the refund amount, don't hesitate to contact your insurance provider directly for clarification. Understanding the refund policy before purchasing Gap insurance can help you make an informed decision and ensure you know what to expect if you need to cancel your coverage.

How to cancel your policy

Cancelling your Gap Insurance policy is a relatively straightforward process, but there are a few things to keep in mind. Here's a step-by-step guide on how to cancel your policy:

• Check your policy terms: Before initiating the cancellation process, review your policy terms to understand your rights and the specific procedures outlined by your insurance provider. Different companies have varying cancellation policies, so it's essential to familiarise yourself with their specific guidelines.
• Contact your insurance provider: Get in touch with your Gap Insurance company to inform them of your intention to cancel the policy. Ask them to guide you through their cancellation process and provide you with the necessary forms or documentation.
• Prepare the required documentation: Depending on your insurance provider and the reason for cancellation, you may need to submit various documents. Commonly requested documents include gap insurance cancellation forms, a copy of your odometer disclosure statement, proof of sale or trade-in, and a copy of your auto loan payoff statement showing the date your vehicle was paid off.
• Submit the cancellation request and required documentation: Once you have gathered all the necessary information and paperwork, submit your cancellation request and supporting documents to your insurance provider. Be sure to keep records of your communication and submissions for your reference.
• Follow up on the cancellation and refund: After submitting your cancellation request, stay in touch with your insurance provider to ensure that your policy is successfully cancelled and that any refund due to you is processed. The refund process can vary in duration, typically taking a few days up to six weeks.
• Switch to a new policy (if applicable): If you are cancelling your current Gap Insurance policy to switch to a different provider, ensure that your new policy is in place and active before cancelling the existing one. This will help prevent any lapse in coverage for your vehicle.

Remember that your ability to obtain a refund is dependent on several factors, including the timing of your cancellation, the terms of your specific policy, and whether you have made any claims. It's always a good idea to review your policy terms and consult with your insurance provider directly to understand your unique situation better.

Frequently asked questions