Think of GAP insurance refunds like that $20 bill that you forgot about in your jeans pocket and then found when you were doing the laundry. Technically, the $20 was yours to begin with, but it still feels like a gift when you find it. Right?
Well, GAP insurance refunds can give you that same feeling. Even though the refund was really your money to begin with and you knew the refund was coming, it still feels like you’re getting an unexpected gift when it happens.
Let’s get you on your way to finding out if you’re eligible for a gift (err, GAP insurance refund) and how to get one.
- What Is GAP Insurance?
- What Is a GAP Insurance Refund?
- How Does a GAP Insurance Refund Work?
- How to Get Your Money Back From Your GAP Insurance Provider
- GAP Insurance Refund FAQs
What Is GAP Insurance?
Before we dive into the details of GAP insurance refunds, let’s go over the basics of what GAP insurance is.
GAP insurance pays the difference between the actual cash value (ACV) of your car and the amount you still owe on your lease or your loan. So, if you took out a loan or leased your car (not recommended!), and your car gets totaled or stolen before you have a chance to pay off your loan or lease, GAP insurance will cover the difference.
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Make sense? We wrote more details about how GAP insurance works and why you need it here.
What Is a GAP Insurance Refund?
True to its name, a GAP insurance refund reimburses insurance policy holders for the balance of the premium that’s unused.
So, for example, suppose you bought GAP insurance for your car because you borrowed a substantial amount of money to buy the car, and you want to keep your emergency fund in the event the car is totaled or stolen.
Two and a half years later, you’re able to pay off your car loan earlier than expected. (Bravo!) If you pay your insurance bill annually and not monthly, you can get a refund for the GAP coverage for that other half year you already paid for.
GAP insurance refunds can get a little confusing once you start adding conditions. No need to worry though. In this next section, we’re going to spell out the nitty-gritty about how GAP refunds work in any situation.
How Does a GAP Insurance Refund Work?
Here are some situations that show when you can and when you can’t get a GAP insurance refund.
When You Can Get a GAP Insurance Refund
Let’s start with the good news. There are typically three situations when you could cancel your GAP insurance and get a refund:
1. You’re paying off your loan.
Paying off your car loan and getting rid of that annoying monthly bill (including those absurd interest payments) can be a great feeling. Even better? If you pay your car loan off early, you’re eligible for a partial refund for the GAP coverage that you haven’t used yet.Here’s why your refund is only partial. You’ve already used a portion of your GAP insurance policy while your loan was still active. So, you’ll only get back a prorated refund for the part you haven’t already used.
2. You’re switching to a different insurance company.
If you’re not satisfied with your insurance provider, you can switch to a different company. Once you cancel your policy from your original provider (make sure you have new car insurance in place before you cancel the original insurance), you’re eligible for a refund for the cancelled coverage you didn’t use.Typically, if you cancel your insurance within 30 days after the policy’s start date, you can get a full refund (including GAP insurance costs). If you cancel your insurance after 30 days, your refund will be prorated. Check with your insurance provider for your policy details.
3. You’re selling or trading your car.
If you sell or trade a car for which you’ve bought GAP insurance, you can get a refund on the amount of coverage you didn’t use. Make sure you wait to cancel your insurance until after the car is legally sold or traded.
Here’s an example. Let’s say you originally decided to get a car that costs $30,000 and borrowed $25,000 to buy it. You also bought a year’s worth of GAP insurance to protect yourself financially in case the car is totaled or stolen before you’ve had a chance to pay down your $25,000 loan. (Smart!)
After three months of coverage, you want to cancel your GAP insurance. It could be for any of the reasons listed above (loan payoff, switching GAP insurance companies, or you’re selling/trading your car). You’ll get a refund for the nine months of the year that you didn’t use your GAP insurance coverage. Nice!
A quick note on refunds from loan payoffs: Once you show your GAP insurance provider your loan payoff notice, you’ll receive a partial refund for the GAP coverage that you haven’t used. Depending on your reason for canceling your GAP insurance, wait until the car either legally no longer belongs to you or your original loan is officially no longer in effect.
When You Cannot Get a GAP Insurance Refund
Good news again. There’s only one situation when you can’t get a GAP insurance refund. Okay two, if you count not having GAP insurance in the first place.
But let’s talk about the one that counts. If your insured car is declared a total loss and your GAP policy pays out the difference between the car’s value and your loan balance, you won’t be eligible for a refund for the remaining months of coverage. This is because the insurance provider figures they’ve already met (or exceeded) their obligation for the GAP coverage you bought and are no longer responsible for payouts on the policy.
How to Get Your Money Back From Your GAP Insurance Provider
Now that we’ve gone over GAP refund requirements, it’s time to talk about how to actually get one.
Considerations for Canceling Your GAP Insurance
Before we get into the nuts and bolts of requesting a GAP refund, there are a few things to think about that could sway your decision one way or another:
- You’ll only receive a refund for the GAP insurance that you haven’t used. For example, if you cancel your policy after three months of coverage, you’ll only get a refund for the remaining nine months (if you paid for a year of coverage).
- The amount of your refund is based on how you pay your insurance bill. If you pay monthly, you won’t get a refund because you’ve only paid for the coverage you’ve received so far. If you pay your insurance in one lump sum, the amount of your refund will depend on how far into your coverage you were when you canceled your policy.
- Once you cancel your policy and request a refund, it typically takes between four and six weeks to receive the money.
- You have to ask for a GAP insurance refund. Most insurance companies don’t automatically offer them.
Instructions for Canceling Your GAP Insurance Policy
Now for the step-by-step instructions. The steps below assume that you bought your GAP insurance from your insurance provider and not the car dealership. (Hint: It’s way cheaper to get it from your insurance provider.)
- Start the refund process by contacting your insurance provider. Tell them your name, policy number, and that you want to cancel your GAP insurance and get a refund for the remaining coverage. Remember, don’t do this until after your car is legally sold or traded or your loan is officially paid off.
- Gather and send documents to your insurance provider that proves your car was traded, sold or that you paid off your loan early.
- Complete and submit any forms that your insurance provider requires for completing the cancellation process.
- If it seems unclear, reiterate to your provider that you want a refund for the unused GAP insurance coverage. Most insurance provider refunds are sent to you in the form of a check within four to six weeks of your cancellation request.
GAP Insurance Refund FAQs
There are also some unique questions that we didn’t cover in this article. We collected answers to those questions here.
1. Can I get a refund if I never used the GAP coverage?
No. You cannot get a refund simply because you never filed a GAP insurance claim.
2. Can I file a GAP insurance refund lawsuit?
Yes, but before you start haggling with the financial institution that gave you the loan (they don’t have anything to do with your GAP insurance), contact your insurance company. The insurance company may be able to provide the refund without having to file a lawsuit. Make sure you keep all records of phone calls as well as written and email correspondence.
3. Can I get a GAP insurance refund if my car loan is refinanced?
If you refinance the smart way and go with a shorter loan term (and hopefully a lower interest rate), you’ll pay off your car faster. So, you might not need GAP insurance anymore, or you might be able to get rid of it sooner than you would have if you didn’t refinance. Check your loan documents to see if GAP insurance is still necessary. If you no longer need it, we recommend contacting your insurance agent for help getting a refund for the unused premium.
Work With a Pro to Get Your GAP Insurance Refund
When it comes to putting extra money in your pocket with a GAP insurance refund, the best way to cut through the red tape is by working with an experienced insurance professional.
Our Endorsed Local Providers (ELPs) are unbiased car insurance experts and will be able to tell you the smartest and fastest way to get your GAP insurance refund.