Gap car insurance is a valuable debt-cancellation tool although often referred to as insurance. Its purpose is to pay the difference between actual cash value of the insured auto and outstanding loan on it in case your insurer totals it after it is damaged by an insured peril. It can be a valuable protection especially in the early years of buying a costly automobile with finance deal. However, there are a few good reasons for cancelling and asking for gap insurance refund.
Why Would Gap Auto Insurance Be Cancelled?
When you purchase a brand new vehicle its value gets depreciated pretty fast. General belief is that an automobile loses at least ten percent of its value the moment it has left the salesroom. If you have already paid for it outright you are probably less bothered. But not many people are lucky and most have to arrange finance for it. Then, their loan pretty quickly can go upside down and they owe more money than the Actual Cash Value (ACV) of the vehicle.
ACV is important because your insurer would only pay you the fair market value of your auto at the time they total it. So, as long as your loan is upside down you’d better keep your gap protection in place. Otherwise, you won’t be able to pay off your loan with the money you received from insurance and still owe money for a vehicle you don’t have.
However, you wouldn’t need this loan-lease payoff coverage in the following circumstances and need to cancel. It may actually become void anyway.
- If you paid off the loan you don’t need the coverage anymore since you don’t have any gap to be protected for.
- Even if you still have the loan it may be down substantially that what you owe is much less than your car’s actual cash value. Then, you probably don’t need to keep the coverage and your lender may agree to release you of this requirement.
- Gap coverage isn’t transferrable from one automobile to another. So, if you trade in your auto the gap cover for your first car is voided. That is why you will need to buy another policy if you still have finance.
- It isn’t transferrable from one loan to another either. So, if you refinance your current loan you will need to stop the previous cover and buy another one for the new loan, if you still need to.
- Quite often dealer or lenders charge extortionate rates for this coverage. As soon as people realize that the dealer is getting more than 50% commission on their gap car insurance policy they want to cancel it and buy from somewhere else. They may also want some of their money back if they have paid in full already.
The reason people end up purchasing gap insurance from dealers is that they probably hear about it for the first time and think that they can only buy such coverage from dealers. Dealers won’t certainly tell them that they can buy coverage much cheaper from somewhere else because they will lose their commission. You can get this coverage for as little as $20 per annum from most insurance companies. So, don’t let anyone con you into signing a terrible deal. You can get auto insurance quotes with gap coverage right here too.
How Does Gap Insurance Refund Work?
Most people don’t realize they can get proportionate premium refund based on how much of the premium is used for time on risk, after trading in their cars, refinancing their loans or canceling the coverage. If you were paying a very competitive premium it may not be as much of a problem. However, people can pay as much as $400 – $700 for it. That is too much money to leave behind.
Some people may not even realize that they have already paid for Gap protection when they bought their vehicle. Dealers or lenders may have quickly touched on it and added the costs onto the loan. So, you should check your loan documents when you sell or trade in a vehicle, pay or refinance a loan. You may be due a refund.
There are a few providers of this cover and each company’s gap insurance refund policy may be slightly different. You can buy gap auto insurance from dealers, lenders, credit unions and most insurance companies. However, most providers do a prorated refund of unused portion of the premium.
With some providers, all you may need is to call them and let them know when you need the policy terminated from. With others you may need to provide some documents confirming the disposal of the vehicle or payment of the loan. Usually, you can send scanned copy of these documents by e-mail.
How Much Gap Vehicle Insurance Refund to Expect
This mostly depends on how you have been paying the premium. There are cases in which full five years worth of premiums are collected as part of the vehicle purchase process. Then, you can expect several hundred dollars depending on how long left in the loan or lease contract.
You will only get refunded if you paid the premium in advance. If you are paying the premium monthly with your loan payments you don’t get any refund since the premium paid is already used.
Some policies may come with 30-days cancellation clause with some providers. If that is the case and this period isn’t over yet you may be able to get full refund.
You can actually get gap coverage for as little as $20 per annum. If that is the case, you don’t need to eagerly wait for a check from your insurer. Unfortunately, dealers are known to rip off their customers by charging large sums for this and keep half the money as commission. Then, you need to make sure you get your money back.
Usually, you should know or find out who is your gap insurer. Then, you can ask your money back from them but people report getting a refund from their dealers. So, you should check your documents and find out who has pocketed your money. They are the ones who should send the refund.
How Long Does It Take to Get Gap Insurance Refund?
Normally it shouldn’t take more than couple of weeks with most companies. But some companies may make it harder to complete the paperwork. Still, as long as you send what they want there is no reason for them to delay. Just check the process, send it the required documents and follow up if you don’t receive the money back with in few days.