Gap insurance is designed to cover the gap between the actual cash value of your vehicle and the price you paid for that vehicle. Once your car is paid off, however, you no longer need gap insurance. Do you get gap insurance back after you pay off your car? Today, we’re explaining everything you need to know about gap insurance refunds.
What is Gap Insurance?
Gap insurance covers the ‘gap’ between what you owe on a car and what that car is currently worth. Ordinary car insurance is designed to cover the actual cash value of the vehicle, which is the exact value of that vehicle at the time of an accident or another insured event.
However, depreciation can be steep on a new car. You might have paid $60,000 for a brand new truck, only to have that truck be worth $50,000 the moment you drive it off the lot.
That’s where you need gap insurance. If you get into an accident with your new vehicle, then your insurance might pay you less than what you owe on the vehicle. You might receive a $50,000 insurance payout, for example, despite the fact that you paid $60,000 for your car.
Depending on who you ask, gap insurance can refer to the ‘gap’ between the value of your car and the amount you actually paid for it. Or, it can refer to ‘Guaranteed Auto Protection’ (GAP). Both gap and GAP insurance, however, are two terms for the same policy.
Why Do I Need Gap Insurance?
Gap insurance is often included in your cay payments or lease payments. A car dealership or financing company will include gap insurance in your monthly payments to ensure you can pay back the loan in any situation, for example.
In most cases, however, gap insurance is built into your leasing or financing agreement. Once you have finished making car payments, you no longer need gap insurance.
How Do Gap Insurance Refunds Work?
Most drivers will never need to make a claim on their gap insurance. If you get into a serious accident while leasing or financing your vehicle, then you may need to use your gap insurance. In most cases, however, your gap insurance will remain untouched.
Once you have reached the end of your lease or financing agreement, your gap insurance payments may be completed. At this point, some drivers wonder if they can get a refund on unclaimed gap insurance payments.
Generally, you will not receive any type of refund on your gap insurance – just like you don’t receive a refund on other insurance policies that go unclaimed. Some drivers will pay for insurance their whole lives without making a claim. That’s just how insurance works.
The only time you may receive a refund on gap insurance is if you pay off your vehicle early, in which case you no longer need gap insurance coverage. If you pay off your vehicle loan early, then you may be entitled to a refund on any gap insurance for which you have prepaid. Contact your financing company or gap insurance provider with proof that you have paid off your vehicle.
In most cases, however, leasing and financing agreements provide no incentive for paying off a vehicle early. The interest payments and gap insurance premiums are built into your monthly payment. In some cases, you may receive a small refund when paying your vehicle in full early. In other cases, however, you will receive no refund whatsoever. Gap insurance is just part of the cost of leasing or financing a vehicle.
How to Cancel Gap Insurance Coverage
If you paid off your vehicle early, then you may be able to cancel your gap insurance coverage separately to obtain a refund.
Check your leasing or financing agreement to determine how your gap coverage works. Then, contact your gap insurance provider with a request to cancel your gap insurance.
You may need to provide various documentation and paperwork before canceling gap insurance coverage, including proof of payment of all auto loans, a copy of your odometer reading, and other gap insurance coverage cancellation forms.
Gap insurance is typically charged on a monthly basis. If you cancel gap insurance early in the month, then you may receive a refund on any unused premiums from the rest of the month. You will also not need to pay any future monthly insurance premiums or payments after you cancel.
Gap insurance is often part of the cost of leasing or financing a vehicle. After your vehicle’s lease or loan is paid off, you no longer need gap insurance. However, you are unlikely to receive a refund on gap insurance.
You may receive a small refund on gap insurance if you have paid off your car loan, then call the insurance provider to cancel your gap insurance. If you paid your gap insurance early in the month, for example, then you might receive a refund on the premiums you have already paid. In most cases, however, you are not entitled to a refund of any previous gap insurance payments.