How to Cancel Gap Insurance and Get a Refund

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Written by Mandy Sleight Edited by Lequita Westbrooks

Updated December 15, 2023

If you make a small down payment on a vehicle, roll over negative equity, or have a long finance term, the Insurance Information Institute advises purchasing gap insurance. Gap insurance can cover the difference if you total your car and it’s worth less than your remaining loan balance.

But if you no longer need gap coverage, you can cancel it and may receive a refund. How much you’ll receive depends on how long you’ve had coverage and the term details. We explain how to cancel gap insurance and get a refund — whether you purchased through the dealer, lender, or car insurance company.

How Do You Cancel Gap Insurance?

You might want to cancel your gap insurance coverage if you’ve sold your vehicle, paid off the auto loan, or your loan balance is below the car’s current market value.

Here are the steps to cancel gap insurance coverage:

1. Review your policy coverage. Check the terms and conditions of your gap insurance policy to ensure you can cancel and get a refund. You should be able to cancel it if gap coverage isn’t a loan or lease requirement.
2. Contact your insurance company. The process of canceling gap insurance can vary by insurer. For instance, you might have to call to cancel or put the request in writing. If you have online or mobile access to your account, you may be able to request cancellation and a refund online.
3. Provide the right documentation. We’ll go over the documentation in detail later on, but make sure you have everything you need before requesting the cancellation to avoid delays in processing your refund. Ask how long it should take to process and receive your refund for the next step.
4. Follow up. If the cancellation process takes longer than expected, follow up with the insurance company to ensure it’s in progress so you can receive your refund.

What to consider before canceling gap insurance

Before canceling gap insurance, determine if there are any early cancellation fees or penalties. Also, make sure canceling doesn’t violate the terms of your lease agreement — the leasing company may require it for the entire term.

It’s also a good idea to make sure the car’s actual cash value (ACV) is less than what you owe, so you won’t be responsible for the difference if your vehicle is totaled after a car accident.

Next, we’ll explain how to request a gap insurance refund.

How to Request a Gap Insurance Refund

You’ll need to contact your auto insurer, lender, or the car dealership you purchased the coverage from to request a gap insurance refund. The company can tell you its specific process for canceling gap coverage and getting your refund.

You can also check your contract to determine the cancellation process.

To help the process go smoothly and get your refund fast, make sure you have the proper documentation, which may include:

• Proof that the vehicle has been sold, paid off, totaled, or traded in
• An odometer disclosure statement with the current mileage reading
• Your car insurance declarations page
• A copy of your finance agreement
• Gap insurance policy details
• Completed gap insurance cancellation form

How to get gap insurance refunded by insurance

You can usually request a gap insurance refund from your car insurance company at any time. If you have an online account, you may be able to request the coverage cancellation through the insurer’s online portal.

If not, contact your insurance agent to request cancellation. You might need to fill out a form or provide written authorization to remove the gap coverage. Your insurer will cancel the gap coverage and issue any refund, though the timing and amount can vary.

How to get gap insurance refunded by the dealership

You must contact the dealer directly to determine how to cancel gap insurance to get a refund. Be prepared to fill out a cancellation request form and provide any necessary documents, as mentioned above.

When you ask to cancel the gap policy, mention that you want a refund for any unused gap insurance premium. Typically, receiving a gap refund takes anywhere from 30 to 90 days.

How to calculate your gap insurance refund

Your gap refund amount can vary, depending on factors like:

• The remaining loan amount
• Vehicle mileage
• The actual cash value of your vehicle
• Repayment term

If you prepaid for gap insurance, you may receive a lump sum of the unused portion. To calculate your refund, divide the cost of gap insurance by the number of months you were covered. Take this figure and multiply it by the months left in the policy.

For instance, if you paid $500 for gap insurance over a 24-month period, that’s around $21 monthly. If you have 12 months left of coverage, you’ll receive around $250 ($21 x 12 months).

If you make monthly payments, you’ll likely get a prorated refund. Confirm the refund amount with the dealer or insurer when canceling.

When You Can’t Get Your Gap Insurance Refunded

Sometimes, gap insurance isn’t refundable. Here are some reasons you may not get a refund:

• Your gap insurance contract has expired
• The gap policy lapsed due to non-payment
• The cancellation fee is more than the refund amount
• Lease gap coverage is a requirement for a leased vehicle
• You filed a gap insurance claim and received reimbursement or a loan payoff greater than the full refund amount

Canceling Gap Insurance FAQs

We answered some common questions below about how canceling gap insurance works.

Can you cancel gap insurance at any time?

Yes. You can usually cancel gap insurance at any time — but you may not be eligible for a refund in all situations. For example, if you filed a claim or are close to the end of your gap insurance contract, your gap refund will be reduced by the paid claim or administration fee.

Can you get a gap insurance refund after a total loss?

If your vehicle is totaled and the gap insurance policy pays off the loan balance on your auto loan, you’re usually not eligible for a gap insurance refund. Contact your auto insurer, dealer, or lender to determine if you qualify or read through your gap insurance contract.

Can you get a gap insurance refund if you refinance your car loan?

If you refinance your car loan, you may be entitled to a gap insurance refund from the previous finance company. It depends on your contract details, financial institution, whether you’ve made a prior claim, and how much you still owe for gap insurance coverage.

Can you get a gap insurance refund when your car is paid off?

It depends. You may be eligible for a gap insurance refund if you paid your car off early. But if you paid the loan contract in full and on time, the gap insurance policy likely expires when the loan contract ends.

How long does it take to get your gap insurance refund?

The time it takes to get your gap insurance refund depends on where you purchased it. It usually only takes a few days to a few weeks to process if you purchased through your auto insurer. But if you bought it through the dealer or a lender, it can take up to 90 days.

Sources

Insurance Information Institute, “What is gap insurance?,” Accessed Nov

Mandy Sleight Auto Insurance Writer

Mandy Sleight has over 15 years of insurance knowledge and expertise in auto, home, life, health, pet, supplemental benefits, and other insurance products. She is a sought-after insurance expert, appearing in Bankrate.com, Moneygeek.com, U.S. News & World Report, Reviews.com, CNET, and other publications. She uses her background and experience working for well-known insurance companies like State Farm and Nationwide Insurance to create engaging and easy-to-understand content to help readers make smarter insurance choices that have a positive effect on their budgets and finances.