When Can You Get a Gap Insurance Refund?

Unless your gap insurance policy states otherwise, you should be able to cancel your coverage and seek a refund at any point during the policy period.
Written by Drew Waterstreet
Reviewed by Amy Bobinger
Gap insurance
refunds are issued upon cancellation and should be available at any point in your policy period—unless the fine print of your contract says otherwise.
With depreciation rates as crazy as they are, it’s not uncommon to have
negative equity
on your car: meaning your loan is worth more than the actual cash value (ACV) of the vehicle.
So if your vehicle is considered a
total loss
in an accident, your
collision coverage
will pay out the ACV (see Kelley Blue Book for estimates)—but that’s it. Unfortunately, this leaves you on the hook to finish making out-of-pocket payments on a loan for a car that no longer exists—which stinks! Luckily, gap insurance saves the day by covering the amount you still owe the lender. 
However, a gap insurance policy is no longer necessary once your loan is less than the car’s value (positive equity). So it’s time to cancel and get your refund for any unused premiums or prepaid lump sums—let us show you how to go about that!

What is a gap insurance refund?

A gap insurance refund is money that is returned to you for incomplete services that stem from early cancellation. 
When you pay for gap insurance, it’s either included in your monthly insurance premium or made in a longer-term lump sum. If you cancel before the policy period ends, you will be refunded the unused portion of your payment. So it’s technically your money, but a refund sounds more fun!
You typically drop gap insurance coverage from your car insurance policy for one of a few reasons: 
  • Your loan balance is less than the value of your vehicle
  • You want to lower your insurance rates
  • You’re switching to a different insurance company
  • You’re selling or trading your car
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When can you get a gap insurance refund?

Auto insurance companies will allow you to cancel your gap insurance anytime during your policy. And as long as you still have unused premiums or prepaid lump sums during the policy period, you will most likely qualify for a refund (unless there’s something in the fine print of your policy).
But if you purchased your gap insurance from a car dealership, they may be less excited about you canceling your gap insurance. Considering the cost of your gap policy gets lumped into your car loan, the car dealership can make interest on it—so they have skin in the game. But unless your contract says otherwise, you’re not required to keep it. So if you feel comfortable where you’re at in your auto financing journey, go ahead and request a cancellation and access a refund.

When you cannot get a refund

You will not be able to cancel your gap insurance if you are leasing a car, which means refunds won’t be available either. 
But if you are financing a car, you should be able to cancel at any time, allowing you to seek a full refund for the unused portion of your policy—again, as long as there’s nothing prohibiting it in the fine print of the contract. Some shady car dealerships will slip in a contingency that states you must have positive equity on the vehicle or have paid off your loan entirely before canceling your gap insurance. So read the terms and conditions carefully.
We also don’t recommend canceling your gap insurance when you have negative equity on your vehicle. While the refund may seem appealing, the affordable premiums for gap insurance (sometimes as low as $3 per month with full coverage) are worth the benefits. As we mentioned earlier, it’s no fun to continue making payments on a loan for a totaled car.

How to request a gap insurance refund

You may be able to cancel your gap insurance directly from your provider’s mobile app or website. If not, you will have to contact your insurance agent. But the process should be as simple as requesting a cancellation and waiting for the refund to be automatically sent back to you via check or direct deposit. While cancellation happens immediately, the refund will most likely take a few weeks.
"After I bought my new car, the insurance providers tried charging me $315/month.
, on the other hand, found me full coverage for only $220/month. Thank you!” —Mari E.
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Leave your calculator on your desk—we ran an example for you: Let’s say you take out a $900 gap insurance policy for a 36-month coverage period. Reduce it down to monthly costs, which is $25 in this case ($900/36 months). Multiply $25 by the number of months remaining—let’s say 11 months. So your total refund should come out to $275. Simple as that!
Your gap insurance is canceled immediately upon request, but it may take a few weeks for the refund to be distributed to you via direct deposit or check. But this will vary across providers!
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