Can You Cancel Gapp Insurance on a Car Loan

How to Cancel Gap Insurance

When you're buying a new car, negotiating the price is only half the battle. After that comes an onslaught of extras: Do you want corrosion protection? How about paint sealant? Window etching? Extended warranty? Gap insurance?

It's all too easy to say yes to that last offer, especially when the dealer offers to roll the gap insurance premium into your car loan amount. But if you buy it from the dealer, you're probably paying too much. Do you really need gap insurance? And can you cancel gap insurance after you've purchased it?

We'll begin with a brief overview of how gap insurance works and the reasons why you should have it on your policy. After you understand what it is, we'll explain when you should and shouldn't cancel your policy and how to do it when you're ready.

What is Gap Insurance?

Gap insurance (aka "guaranteed auto protection") covers the difference between what your car or truck is worth and the amount you owe on it if it's totaled or stolen. Having gap insurance is valuable because a vehicle begins to depreciate the second you drive it off the lot, with most cars losing 20 percent of their value within its first year. Then they continue to lose their value annually.

Let's clear this up by looking at an example.

Say you buy a brand-new, bright red Ford F-150 XL with a sticker price of $28,000.

You love that truck, and you're over the moon — but then, a few months after you sign the loan, you skid on a wet road and slam into an overpass. Luckily you're OK, but your ride is totaled.

Your insurance will only pay $24,000, the truck's depreciated value, but you owe $26,000 on the loan. Gap insurance can cover that $2,000 gap, so you don't have to pay it out of pocket.

Does Gap Insurance Cover Missed Car Payments?

Some people think gap insurance is a broad insurance policy that covers all situations, like missing a car payment, repairs to a new car, medical bills after an accident, or the loan balance if the vehicle is repossessed. No! It does not cover these things. Gap insurance only covers the difference between the actual cash value of your car, minus the deductible, and the amount you owe on the vehicle, should it be stolen or totaled.

Read the fine print when you buy gap insurance, too. Some policies may exclude certain losses — if you total the car in a DUI accident, for instance, it might not be covered.

Do I Really Need Gap Insurance?

The Insurance Information Institute recommends getting it if you:

Make less than a 20 percent down payment
Finance for 60 months or longer
Lease a vehicle (carrying gap insurance is generally required for a lease)
Purchase a car that depreciates faster than average
Rollover negative equity from an old car loan into the new loan

How Much Does Gap Insurance Cost?

That depends on the value of your car and where you get your insurance — from the dealer or your insurance company. If you buy gap insurance from the dealer, it may cost a lump sum of around $500 to $1,000. If you purchase gap insurance from your auto insurer, it may cost about 5 percent of your regular collision and comprehensive premium. If your C&C premium is $700 per year, then you'd pay $35 for a full year of gap insurance. That's a much better deal.

Can I Cancel Gap Insurance?

Yes, in most cases, you can cancel your gap insurance coverage. However, depending on when you request to cancel, you likely won't get a full refund. Instead, you'll receive a prorated refund based on how much time you've had your policy.

When Should I Cancel Gap Insurance?

So you're ready to cancel your gap insurance and pocket your refund? Not too fast. You only want to cancel your policy if it doesn't make financial sense for you anymore. Otherwise, you could be removing an essential layer of protection. Here are 4 circumstances when we do recommend canceling your gap insurance coverage.

You Overpaid for it When You Bought Your Car

Don't get mad if you succumbed to car sales pressure and bought gap insurance from the dealer. Get a refund! Just be sure to act quickly. Typically, you have 30 days to cancel the insurance policy and get full reimbursement. After that, you may only get a prorated refund or possibly have to pay a fee. Read your policy documents to find out how to cancel your gap insurance. Then, if you choose to, buy a new gap insurance policy from your regular insurance company.

You can compare car insurance rates online to find the best deal.

Your Car Loan is Less Than the Value of the Car

Typically you only need gap insurance for a short time, after which the amount you owe on your loan should be less than the car is worth—wondering when you'll hit that tipping point? First, look at your car loan statement to see how much you owe on the vehicle itself (excluding any extras). Then, check your car's approximate value on the Kelley Blue Book site. If your car's value is close to the loan balance, you're good to cancel.

You Sold the Car or Paid Off Your Loan

If you bought the dealer's insurance and paid upfront, you should get a refund. Likewise, if you've paid off your loan, you don't need gap insurance — because there's no gap to worry about! You can't transfer gap insurance to a new vehicle (you'll have to buy a new policy), so if you get rid of your car, the insurance company will cancel your gap policy.

You Really, Really Need to Cut Your Car Insurance Premiums

If car insurance is a significant drain on your budget, you may be looking for ways to save. Canceling gap insurance is one small way you can cut costs. But want to know the best way to save? Shop for auto insurance quotes online at Compare.com. You can see personalized, unbiased quotes from multiple insurance companies in just a few minutes and then pick the best deal. Once you've found a cheap policy, you can ask your new insurer for a gap insurance quote if you still need it.

How Do I Cancel My Gap Insurance Policy?

Convinced that canceling your gap insurance is the right step for you? OK, great. Here's how to cancel your gap insurance. Keep in mind the exact steps might change depending on the company, so be sure to confirm the process before you begin.

Review Your Policy Terms

You want to start by reviewing the terms you agreed to when purchasing your gap insurance. Be sure you know the cancellation policy, whether you paid in full or enrolled in a payment plan, and the total cost.

Get Your Mileage

Your vehicle's mileage can impact your refund, so know the mileage on your car. You can get an odometer disclosure statement from a car dealer to verify your mileage.

Request Cancellation Forms

Next, you want to request cancellation forms from the company you secured gap insurance through. This might be the dealership you purchased your vehicle from, the auto loan lender, your primary insurance company, or specific gap insurance company.

Submit Required Documentation

Depending on which company you secure your gap insurance with, you'll likely need to submit various pieces of documentation to cancel your policy. Some common requested items are:

Cancellation forms
Refund forms
Odometer disclosure statement
Proof of sale if you're selling/trading your vehicle
Payoff letter if you've paid off your vehicle

How Do I Calculate My Gap Insurance Refund?

If you paid your gap insurance premium in full when purchasing your policy, you should receive a refund when you cancel your policy. You can calculate your gap insurance refund to get an idea of how much you can expect to receive back.

Here are the steps to take:

Determine how much you paid for your premium and how many months your gap insurance policy cover
Divide the premium amount by how many months the policy covers to determine your monthly policy cost
Multiply your monthly policy cost by how many months are remaining on your policy.

Here's an example:

You paid $500 for your gap insurance policy which covers 24 months
$500 divided by 24 is approximately $21 – so that is your monthly policy cost
You have 12 months left on your policy, so multiple $21 by 12 to get $252. That's how much of a refund you should receive.

How Long Does It Take to Get a Gap Insurance Refund?

The timeline for getting your gap insurance refund after canceling your policy can vary widely from a few days to a few weeks depending on the company. When you inquire about canceling your policy, be sure to understand the timeline you should expect to receive your refund.

FAQs About How to Cancel Gap Insurance Coverage

If you're still on the fence about canceling your gap insurance, here are some commonly asked questions about the process.

How do I cancel my gap insurance from a dealership?

You want to review your gap insurance purchase documents, then contact the dealership directly. Likely you'll speak with the finance manager about canceling your policy. You will need to complete a gap insurance cancellation request form, and the dealership should process it with the gap insurance company from there.

Do I get my money back if I cancel my gap insurance?

Typically there's a 30-day full refund policy for canceling your gap insurance. However, this can vary based on the company. Some companies will offer a prorated refund depending on your cancellation circumstances.

Can you cancel gap insurance at any time?

Yes, you can typically cancel your gap insurance at any time if you find you no longer need it. Be sure to learn the cancellation terms, so you know what to expect in terms of fees, refunds, and the like.

What happens if you don't use your gap insurance?

This is a use it or lose it situation. If you don't use your gap insurance, you just don't use it. You won't get a refund for those premium amounts because you didn't need the coverage, as you wouldn't for your primary auto insurance or medical insurance. However, if you pay off your vehicle early or sell/trade it, you should be able to receive a prorated refund for the months your policy is cancelled.

What happens when you cancel gap insurance?

Depending on your policy terms, you could receive a refund for the months you no longer have the policy. Once it's canceled, you'll no longer have gap insurance on your vehicle, and you can remain without it or choose another gap insurance policy.

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Can You Cancel Gapp Insurance on a Car Loan

Source: https://www.compare.com/auto-insurance/coverage/canceling-gap-insurance