Can you cancel gap insurance at any time?
Drivers are allowed to cancel gap insurance at any time, says Allyson Langhoff, a used car dealership consultant at Superior Honda in the greater New Orleans area.
"However, canceling gap insurance is not generally recommended since it's the best way to protect your finances when leasing or financing a new vehicle,” Langhoff says.
Unlike liability auto insurance, which is a legal requirement to drive in most states, gap insurance isn’t mandatory when you lease or finance a vehicle. Gap insurance is usually paid for upfront rather than in monthly installments, so you might get some of your money back if you cancel your coverage. Gap insurance refunds are prorated based on how long you had the coverage in place.
When to cancel gap insurance?
There are certain instances when it makes sense to cancel your gap insurance policy.
"A good time to cancel gap insurance is when it no longer makes financial sense to keep paying for it,” Langhoff says. “This is usually when the remaining balance of your loan is less than the book value of your car, which is the amount you paid for the car, minus its depreciated value over time."
A gap policy is only valuable when you owe more than what the car is worth. So, if your car's value is greater than the remaining loan balance, you’re essentially paying for coverage that you will never use, even if your car is totaled or stolen.
In addition, Langhoff mentions that some drivers decide to cancel gap insurance if they paid too much for coverage, decide to sell their car or need to lower their insurance premiums to save money.
Read more about when you should get gap insurance.
How to cancel gap insurance?
Canceling gap insurance from your auto insurance policy is a fairly straightforward process. Here's how you can drop the gap and potentially get a refund.
- Review your policy: As a first step, it's always a good idea to review your gap insurance policy before you proceed with the cancellation. For example, if your gap insurance provider charges a cancellation fee, you should know that upfront. You should also look for information about how your insurance provider will compensate you once you cancel.
- Get your mileage: The next step is to get an odometer disclosure statement to verify your car's mileage. Make sure to get an official odometer disclosure statement from the dealer. Some insurance carriers don’t allow drivers to self-report their mileage.
- Request cancellation forms: Once you have reviewed the policy details and submitted the odometer disclosure statement, you can ask your gap insurance company for the gap insurance cancellation forms. These forms are used to request a gap insurance refund if you never had to use your coverage.
- Submit the required documents: After filling out all the necessary paperwork, submit the documents to your agent or insurance company. Once they have reviewed the documents and verified the odometer disclosure statement, the carrier will determine how much of a gap insurance refund you are owed. You should receive a check or direct bank payment once your policy is canceled.
How to cancel gap insurance from a dealership
Canceling a gap insurance policy that was bought through a car dealership is virtually the same process as canceling through a private insurance carrier. Find your gap insurance policy documents and contact the insurance provider that issues your policy. Then, you can follow the same steps as outlined above.
You shouldn't need to work with the dealership or notify your salesperson.
Frequently Asked Questions: Can you cancel gap insurance?
Do you get a refund when you cancel gap insurance?
You might be entitled to a gap insurance refund. "If the gap insurance premium was paid in full, you will likely get a refund for the difference," says Langhoff. "However, the amount will usually depend on how long it has been since the car's purchase."
Keep in mind that if you opted to pay your gap insurance on a monthly basis, you may not get a gap insurance refund. If you do get your money back, you will probably get a much smaller amount.
Know more about gap insurance refunds and how it works.
Can you cancel gap insurance on a car loan?
Yes, you can cancel gap insurance from your monthly car loan at any point and for any reason. Gap insurance is never legally required, even as a term of your loan. Before you drop gap insurance, make sure it's the right decision. You can contact your insurance carrier to find out what your car is worth and compare it to the remaining loan balance.
Can you cancel gap insurance on a new car?
If you purchase gap insurance on a new car, you are allowed to cancel it. However, if your lender requires gap insurance as part of your loan, you must keep the policy in force until you are no longer "upside down" on the loan. Before you cancel gap insurance, make sure to check the details of your loan agreement to see whether gap insurance is required, and for how long.
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