What is a gap insurance refund?
A gap insurance refund is the return of unused premiums when you cancel your policy early and have paid the full amount in advance. If you cancel your gap insurance early and have not filed a claim against the policy, you should be entitled to a refund.
Is gap insurance refundable?
Gap insurance is refundable, but only in specific situations. You will not get a gap insurance refund in all circumstances. It depends on whether or not you have filed a claim and whether you have paid in advance for coverage you no longer need.
When can you get a gap insurance refund?
You can get a refund on your gap insurance if:
- You are canceling the policy before the end date.
- You have not filed a gap insurance claim.
- You have paid for the gap insurance coverage in advance.
Every insurance company is different, but you can usually get a gap policy refund at any point before the policy period expires. For example, if you purchase a gap policy for 48 months and sell your car after 12 months, you can request a refund.
When can't you get a gap insurance refund?
You can't receive a gap insurance refund if:
- Your policy has expired.
- Your policy has been canceled for non-payment.
- Your vehicle gets totaled or stolen and you file a gap insurance claim. It doesn't matter how long the policy has been active or how much money you borrowed.
- You haven't paid the full premium in advance and aren't owed a refund.
How does a gap insurance refund work?
You can get a gap insurance contract refund if you cancel the policy early and have paid in advance for coverage.
"If the gap insurance premium was paid in full upon the purchase of your policy, you will likely get a refund for the difference," says Allyson Langhoff, a car dealership consultant in the greater New Orleans area. "Eligibility and amount will vary depending on the car's value, size of the loan, etc."
Before you cancel, ensure that gap insurance isn't a requirement of your loan or lease or that you have met the contract's requirements to cancel the coverage. Usually, that means that you have paid off the loan or have enough equity in the vehicle that there is no longer a gap between the vehicle's value and the loan amount.
You can cancel your gap insurance if you sell or trade in the vehicle. You can't get a gap insurance refund after a total loss if you filed a claim against the policy; however, if you got enough from your car insurance to pay off your loan and don't need to file a gap insurance claim, you may be able to get a refund.
How to get a refund on gap insurance
Follow these steps to get a refund on your gap insurance policy:
- Contact your agent or insurance company and let them know that you want to cancel your policy.
- Complete the paperwork. The company will provide paperwork to fill out and let you know what other information is required.
- Provide an odometer disclosure statement verifying the car's current mileage if requested. You can get this free form from your state's DMV website.
- Provide a letter from your lender verifying that the car loan was closed, if requested.
You should receive your refund once you've submitted all the necessary paperwork and documentation. Most insurance companies allow you to choose between a physical check or a direct deposit to your bank account.
How much is a gap insurance refund?
The amount you get back after canceling your gap insurance policy depends on how you paid for the policy.
If you paid for your gap insurance upfront, you will get back any unused premium. However, your refund will be much smaller, or there may be no refund at all if you pay for your gap insurance monthly.
The amount of the refund may also depend on the loan amount, mileage and value of the vehicle and other factors. Check with your gap insurance company for details.
How to calculate a gap insurance refund
You can do a simple calculation to determine how much money you're owed. Take the total cost of your gap insurance and divide it by the months you had coverage. Then, multiply the monthly premium by the months you have left on your policy.
Here's an example:
- You paid $1,000 for a policy valid for 36 months.
- Your gap insurance monthly payments would be about $27.
- You repay your vehicle loan in full after just 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.
How long does it take to get a gap insurance refund?
How long it takes to get a gap coverage refund depends on your insurance provider. Because gap insurance refunds involve paperwork, you can expect it to take at least a few weeks. You can ask your insurance agent when you should expect to get the money.
How to get a gap insurance refund from a dealership
If you bought your gap insurance from a dealership, the process should be much the same. The insurance company that works with the dealership will process your refund, as long as you are entitled to one.
How to cancel gap insurance
Gap insurance cancelation is easy, but there are some steps to follow.
According to Langhoff, "You should first review the terms of your policy for cancellations and review the total cost of the plan. Next, obtain an odometer disclosure statement to verify your mileage since this can affect how much you get refunded."
Langhoff then recommends notifying your insurance provider to get the cancellation paperwork.
Frequently asked questions: Gap insurance refunds
Can you get a gap insurance refund when your car is paid off?
You can get a gap refund if you pay off your car early. However, you aren't eligible for a refund if you pay it off at the same time the gap insurance policy expires.
For example, if you purchase gap insurance for 36 months and pay your loan of in that exact timeframe, you can't get any money back. But if you pay off your loan in 30 months, you can receive a refund for the six months of unused coverage.
Can you get a gap insurance refund after a total loss?
Yes, you can get a gap insurance refund after a total loss, but only if you don't file a gap insurance claim. If your car insurance payout covers the loan balance in full and you don't need to use the gap insurance, you can then cancel the policy and request a refund. You can't get a gap insurance refund if you file a claim for the loss.
Can you get a gap insurance refund after a trade-in?
Yes, you can get a refund on your gap insurance if you trade in your vehicle and no longer need the coverage.
When should you cancel gap insurance on your vehicle?
You can cancel your gap insurance once your loan balance is lower than the vehicle's actual cash value. Check your loan or lease contract for any gap insurance requirements before you cancel.
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