Can You Get a Refund on GAP Insurance?
Understand the conditions and process for obtaining a refund on your GAP insurance policy, including how your refund amount is calculated.
Guaranteed Asset Protection (GAP) insurance serves to cover the financial “gap” between a vehicle’s actual cash value and the outstanding balance on a car loan if the vehicle is declared a total loss or stolen. This coverage becomes particularly relevant when a vehicle depreciates faster than the loan balance is paid down. It is often possible to receive a refund for the unused portion of a GAP insurance policy.
When a Refund is Possible
A refund for GAP insurance typically becomes available under specific circumstances when the original financial risk the policy was designed to cover no longer exists or significantly diminishes. One common scenario triggering eligibility for a refund is the early payoff of a car loan. When the loan is fully satisfied, the “gap” between the vehicle’s value and the loan balance disappears.
Selling or trading in the vehicle also creates an opportunity for a refund. Upon the sale or trade, the original loan is typically paid off, and ownership transfers, eliminating the need for the existing GAP policy.
Refinancing a car loan is another situation that can make a policyholder eligible for a refund. When a loan is refinanced, a new loan agreement replaces the old one, often necessitating the cancellation of the original GAP policy.
How to Request a Refund
Initiating a GAP insurance refund request requires gathering specific documents and contacting the appropriate entity. First, collect documentation pertinent to your situation, such as your original GAP insurance policy, loan payoff letter, or bill of sale/trade-in agreement.
Next, identify the correct party to contact for the refund. This could be the dealership where you purchased the vehicle and policy, the financial institution that provided your car loan, or the third-party administrator or insurance company that underwrote the GAP policy. Reviewing your original GAP policy documents or loan agreement will usually indicate the responsible party for cancellations and refunds.
When contacting them, clearly state your intent to cancel the GAP policy and request a pro-rata refund. You will likely need to provide your policy number, vehicle identification number (VIN), and details of the event that triggered the refund. Submission methods often include sending a written request via certified mail, utilizing an online portal, or a direct phone call. After submission, the processing time for a refund can vary, and you may receive a check directly, or the refund might be applied to your former loan balance.
Factors Affecting Refund Amount
The amount of a GAP insurance refund is primarily determined on a “pro-rata” basis, meaning the refund is calculated based on the unused portion of the policy’s term. This calculation takes into account the original premium paid for the coverage and the duration of coverage that has already passed versus the total policy term. For example, if a five-year policy is canceled after two years, approximately three-fifths of the premium might be eligible for a refund, before any fees.
Variables influencing the final refund amount also include any cancellation fees stipulated in the policy contract. These fees are deducted from the calculated pro-rata refund amount.
The method by which the original premium was paid also impacts where the refund is directed. If the GAP insurance premium was financed as part of the car loan, the refund typically goes directly to the lienholder to reduce the outstanding loan balance. However, if the premium was paid upfront and in full by the policyholder, the refund is generally issued directly to the policyholder.