Can I Cancel My GAP Insurance Anytime?
Understand if and how to cancel your GAP insurance policy. Get practical guidance on eligibility, the cancellation process, and potential refunds.
Guaranteed Asset Protection (GAP) insurance safeguards vehicle owners. It covers the financial difference if a car is declared a total loss or stolen and the owner owes more on their loan or lease than the vehicle’s actual cash value. Standard auto insurance typically covers only the depreciated market value. GAP insurance steps in to cover the remaining balance, preventing significant out-of-pocket expenses.
Eligibility for Cancellation
GAP insurance policies can generally be canceled when they no longer provide a financial benefit. This often occurs when the outstanding loan balance falls below the vehicle’s current market value, eliminating the “gap” the insurance covers. Cancellation is also an option if the vehicle loan is paid off early, or if the car is sold or traded in.
Refinancing a vehicle loan may also allow cancellation, especially if new loan terms or the vehicle’s value negate the coverage need. While generally cancellable, some lease agreements or loan terms may require maintaining coverage for a specific duration. Review your original contract for any such requirements.
The Cancellation Process
To cancel a GAP insurance policy, first identify the provider: the dealership, lending institution, or an independent insurance company. Contacting the correct entity is essential. Be prepared to provide key information, such as the GAP policy number, vehicle identification number (VIN), and associated loan or lease account number.
Providers often require specific documentation, which may include proof of loan payoff, a bill of sale if the vehicle was sold, or an odometer disclosure statement. Communication methods vary, including phone calls, written requests, or online portals. The provider will guide you through any necessary forms or additional steps, such as obtaining a signed cancellation request.
Understanding Your Refund
Upon canceling a GAP insurance policy, a refund for the unused portion of the premium is often available, particularly if paid upfront. This refund is typically calculated on a prorated basis, meaning the amount returned reflects the remaining coverage term. The calculation usually involves dividing the total premium by the original number of months of coverage to determine a monthly cost, then multiplying that by the number of months remaining. For instance, if a 36-month policy costing $500 is canceled after 12 months, the refund would be based on the remaining 24 months of coverage.
The refund may be issued in various forms, such as a direct check to the policyholder or a credit applied to the outstanding loan balance. The timeframe for receiving a refund can vary, typically ranging from a few weeks to 90 days, depending on the provider. Some policies may include administrative fees or cancellation charges that could reduce the final refund amount. A refund is generally not provided if a claim has already been paid out under the GAP policy for a total loss.