Guaranteed Asset Protection (GAP) is a valuable solution to pay the difference between your car’s depreciated value and outstanding loan on it if it is totaled or stolen. Your comprehensive and collision coverage will pay the current cash value of your auto if it is totaled after an accident or stolen and this may create a gap between the amount paid and the outstanding loan. This shortfall is covered by GAP insurance. It can be a valuable protection especially in the early years of buying a costly automobile with finance. However, there are a few good reasons for not needing it any more and asking for a premium refund.
Why would you cancel GAP Insurance?
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 lot. Then the loan can go upside down and you 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 the auto at the time they total it. So, as long as the debt is upside down you’d better keep the protection in place. Otherwise, you won’t be able to pay the loan off with the money from a claim settlement and still owe for a vehicle you don’t have.
In the below circumstances, you may not need GAP insurance and you can cancel. Or your current coverage may be void and you need to buy another coverage if you still need it.
- If you paid off the debt, you don’t need it anymore since you don’t have anything to be protected for.
- Even if you still have the loan, it may be down substantially that what you owe is much less than the car’s actual cash value. Then, you probably don’t need to keep it and the lender may agree to release you of this requirement (if they insisted in the first place).
- GAP insurance isn’t transferable from one automobile to another. So, if you trade in the auto it is voided. That is why you will need to buy another policy if you still have finance.
- GAP coverage isn’t transferable from one loan to another either. So, if you refinance it you will need to stop the previous GAP Insurance and buy another one for the new borrowing, if you still need to.
- You can cancel GAP insurance if you want to buy it from another source. Then you would want your money back if you paid in full already.
How does gap insurance refund work?
In most cases, you can get the unused proportion of the premium back, after trading in cars, refinancing debt or canceling the coverage.
Some people may not even realize that they have already paid for Gap insurance when they bought a vehicle. Dealers or lenders may have added the costs onto the borrowing. So, you should check the documents when you sell or trade in a vehicle, pay off or refinance the loan. You may be due some money back.
There are a few providers of this cover and each may administer it differently. You can buy it from dealers, lenders, credit unions and most insurers. However, most providers do a prorated refund of unused portions 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. Some companies may need the odometer reading as well.
How much Gap insurance refund to expect?
This mostly depends on how you have been paying the premium. If you have been paying yearly upfront, you can expect to get some money, depending on where you are in the cycle and how expensive it was. If you are paying it monthly with insurance or loan payments you may not get anything back or receive a small refund since it is already used for time on risk.
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 a full refund.
If your car is already totaled or stolen and GAP coverage is used, you can not get a refund for the premiums paid for future months.
How long does Gap insurance refund take?
Normally it takes 4 – 6 weeks with most companies. As long as you send what they want, there is no reason for a delay. Just check the process, send the required documents and follow up if you don’t receive your money back within this time period.