Do You Get Money Back From Gap Insurance?

Guaranteed Asset Protection (GAP) insurance serves as an optional coverage designed to protect vehicle owners from a financial shortfall. This type of insurance bridges the “gap” between the outstanding balance on a vehicle loan or lease and the vehicle’s actual cash value (ACV) if it is declared a total loss due to theft or an accident. When a vehicle is totaled or stolen, standard auto insurance typically pays out only the car’s ACV, which can be less than the amount still owed on the loan, particularly early in the loan term due to rapid depreciation. It is often possible to obtain a refund for the unused portion of a GAP insurance policy under certain conditions.

When a GAP Insurance Refund is Possible

A refund for GAP insurance becomes possible when the coverage is no longer needed or the policy term is prematurely concluded. One frequent situation is the early payoff of a vehicle loan. If a loan is paid off sooner than its original term, the GAP insurance may have unused premium remaining.

Another common instance for a refund arises when a vehicle is sold or traded in before the loan is fully repaid and the GAP policy term concludes. Once the vehicle is no longer in the policyholder’s possession, the need for GAP coverage ceases. Similarly, refinancing a car loan can also trigger eligibility for a GAP insurance refund. The original GAP policy is usually tied to the initial loan, and when that loan is paid off through refinancing, the existing GAP coverage becomes redundant.

Policy cancellation for other reasons, such as switching insurance providers, can also lead to a refund. However, a refund is generally not issued if the vehicle was declared a total loss and the GAP policy paid out a claim. If the policy was paid upfront, a refund for the unused portion is typically available.

How Your GAP Insurance Refund is Calculated

Refunds are typically prorated, meaning the amount returned reflects the time remaining on the policy compared to its original term. For instance, if a policy was purchased for a 60-month loan term and canceled after 30 months, approximately half of the premium might be refunded. This prorated amount is determined by dividing the total cost of the GAP insurance by the total number of months of coverage, which yields a monthly premium cost. This monthly cost is then multiplied by the number of months remaining on the policy at the time of cancellation.

Some providers or lenders may impose administrative fees or cancellation charges, which would be deducted from the prorated refund amount. A partial refund for the unused coverage is typically expected. If premiums were paid monthly, a refund might be smaller or not applicable for the current month, but if a lump sum was paid upfront, a prorated refund is more common.

Steps to Request a GAP Insurance Refund

To initiate a GAP insurance refund, the first step involves identifying the specific provider of your GAP coverage. This could be the dealership where the vehicle was purchased, the lending institution that financed the vehicle, or a third-party insurance company.

Next, gather all necessary documentation related to your GAP policy and the event triggering the refund.

• Your GAP policy number
• The vehicle’s VIN (Vehicle Identification Number)
• The loan account number
• A loan payoff letter (if refund is due to loan payoff)
• A bill of sale or other proof of sale document (for vehicle sale or trade-in)

Contact the GAP insurance provider directly to formally request the refund. This can often be done through a dedicated cancellation department, via phone, or through online portals. State your intention to cancel the policy and request a refund for the unused premium. The provider will likely guide you through their specific process and may require you to complete certain forms.

After submitting the required documentation and forms, follow up with the provider to confirm receipt and inquire about the processing timeline. Refunds typically take between four to six weeks to process. The refund is commonly issued as a check or directly applied to the loan account if there is a remaining balance. GAP insurance refunds are not automatic and require the policyholder to actively request them.