Most people who buy a new car end up purchasing gap insurance coverage. Gap coverage can help protect your wallet in the early days of car ownership, when you usually owe more money than the car is worth.
There comes a time when you don’t need gap insurance for your car anymore, though. At that point you’ll want to cancel the insurance, and try to get as much of a refund as possible. Read on to find out how.
What Is Gap Insurance?
In car terms, gap insurance is actually an acronym that stands for “guaranteed asset protection.” If your car is totaled, gap insurance covers the difference between what the car is worth and what you owe.
The value of a car depreciates dramatically as soon as you take it off the lot and it’s no longer new, so there’s usually a period when you buy a new car and owe more money than you could sell the car for.
Here’s a simple example. Let’s say you buy a new car for $30,000 with no money down. As soon as you drive it away from the dealership, it may only be worth $22,000 because now it’s a used car. If the car is totaled on your drive home, your car insurance will only cover the value of the car, which is $22,000. That leaves you needing to cover an extra $8,000, because you still owe $30,000 on the car. Gap coverage takes care of that $8,000.
Do You Need Gap Insurance Coverage?
Gap coverage is not required by law. However, some dealerships won’t sell you a new car unless you have gap coverage, since they’re assuming some risk as well. If a dealership does sell you a car without gap coverage, there’s a good chance that they’ll charge you larger monthly payments to make sure they protect their asset as much as possible.
When Do You No Longer Need Gap Coverage?
There are a few reasons why you might not need gap coverage anymore, but the most common one is when you’ve paid off enough of your car that you no longer owe more than the value of the car. For instance, in the prior example, if you’ve paid off $15,000 of the car, then you only owe $15,000 more. If the car’s value is $15,000, then there’s nothing left for gap coverage to cover.
Another common reason to no longer need some of your gap coverage is if you purchased the coverage through the dealership, but have a better gap coverage offer through your standard car insurer. If you sell the car, you also won’t need gap coverage anymore.
How to Cancel Your Gap Coverage
Canceling your car’s gap coverage is very easy. All you have to do is call the company providing the coverage and tell them you’d like to cancel.
Gap coverage is usually provided by one of three sources:
- Your car insurance company
- The dealership or the bank that is financing the car sale
- A third-party company that just provides gap coverage
How to Get a Refund on Gap Insurance
A lot of times you can get a refund when you cancel your gap coverage. If you cancel in the first few months, that refund will often be in full. Otherwise, you’re likely to get a prorated portion.
Getting a refund is also quite easy. When you cancel your gap coverage, just ask for it. Many companies won’t give you your gap coverage refund unless you specifically ask for it, but as long as you do that, you’re in the clear.
Gap insurance can really help you out, but it’s not always needed. When the time comes where you no longer need it, make sure to cancel and get as big of a refund as possible.