Gap insurance is intended to make you financially whole again if your car is totaled but you still have a loan balance to pay off. If you purchased this coverage from the dealership and you no longer want it, you may be able to get a gap insurance refund for the unused portion. Contact the dealership to follow the correct steps and make sure you request a refund before the deadline — but not all gap insurance is refundable.
When to cancel gap insurance from the dealership
Although it can be a wise add-on when you buy or lease a new car, you only need gap coverage as long as your car is financed, so cancel it if you pay your loan off early.
Before your loan is paid off, it may be time to cancel gap insurance if:
- You’ve sold your vehicle
- Your car loan balance is less than the car’s actual cash value
- You no longer feel gap insurance is necessary for your vehicle
- You want to switch gap insurance providers
You cannot get a gap insurance refund if:
- The gap insurance already paid out after your vehicle was declared a total loss
- Your gap insurance policy has expired
- You have not fully paid your gap insurance premium
- You missed the deadline to request a refund
How to get a gap insurance refund from the dealership
To get a gap insurance refund from your dealership, follow these steps:
- Review your original contract: Check your gap insurance contract for any cancellation restrictions or deadlines for requesting a refund.
- Request other gap insurance quotes (if necessary): If you have a car loan or lease agreement, your lender may require you to carry gap insurance. To avoid a lapse in coverage, you’ll need to purchase gap insurance from your regular auto insurance company or a different provider before you cancel your current policy.
- Prepare your paperwork: Make sure you have your original gap insurance paperwork, your new gap insurance paperwork (if applicable), and your auto loan or lease agreement.
- Contact the dealership: Request a cancellation and prepare to follow the necessary steps.
- Request a refund: If you paid your premium in full when closing on your new vehicle, you may be eligible for a refund for the coverage you didn’t use once you cancel. If your gap insurance is bundled into your car payment, you should notice a decrease in your monthly payments, as well.
How to calculate your gap insurance refund
If you paid your entire premium upfront, here’s how to calculate your estimated gap insurance refund:
- Divide your gap insurance premium by the total number of months your policy covers
- Check your policy expiration date to find out how many months you have left
- Multiply your monthly cost by the number of months remaining on your policy
Example: Let’s say you take out a $720 gap insurance policy for a 36-month coverage period, and you are eligible for a full refund according to the terms and conditions of your policy. If you are currently paying about $20 per month and you decide to cancel that policy with 11 months remaining, you could receive a total refund of up to $220.
Keep in mind: This might not be the exact refund you will receive—some policies may charge you a cancellation fee. Additionally, if your car dealer rolled your gap insurance payment into your loan amount, the refund may not be so straightforward because the loan’s interest clouds the picture.
On the other hand: If you cancel your policy shortly after purchasing it, you may be eligible for a full refund. You’ll need to contact your dealership (or the gap insurance provider they work with) to know for sure.
Why consider gap from insurance companies
Insurance companies generally offer more affordable gap insurance pricing compared to dealerships, mainly because it’s cheaper as a policy add-on then alone. However, you may end up paying interest on your gap coverage on top of the premium if its price is rolled into a loan or lease. Here are just a handful of insurance companies that offer gap insurance to auto policy holders at lower rates than the typical dealership:
FAQ
-
How long does it take to get a gap insurance refund?
-
Is gap insurance refundable?
-
Can I get a refund on my gap insurance after the car is totaled?
Megan Lee is an editor, writer, and SEO expert who specializes in insurance, personal finance, travel, and healthcare. She has been published in U.S. News & World Report, USA Today and elsewhere, and has spoken at conferences like that of NAFSA: Association of International Educators. Megan has built and directed remote content teams and editorial strategies for several websites, including NerdWallet. When she`s not crafting her next piece of content, Megan adventures around her Midwest home base where she likes to drink cortados, attend theme parties, ride her bike and cook Asian food.
Lacie Glover is a Lead Content Strategist with sixteen years’ experience in the insurance category. Prior to Jerry, she spent more than a decade on NerdWallet’s content team writing, editing and then overseeing the auto insurance category, as well as dabbling in other insurance and automotive topics. Prior to her career in the online personal finance content space, Lacie spent time in the hard sciences, in clinical research and chemistry labs. She has a bachelor’s degree from Colorado State University.
