How Is a GAP Insurance Refund Calculated?

Guaranteed Asset Protection (GAP) insurance serves as a financial safeguard for vehicle owners. This coverage bridges the potential financial “gap” that can arise if a vehicle is declared a total loss or stolen, and the outstanding loan balance exceeds the car’s actual cash value. While GAP insurance provides valuable protection, circumstances such as paying off a loan early or selling the vehicle can make the coverage unnecessary. In such instances, a refund of the unused premium may be available to the policyholder.

Understanding How Your Refund is Calculated

The calculation of a GAP insurance refund primarily relies on the “pro-rata” method. This approach ensures the refund amount is proportional to the remaining, unused portion of the policy’s term. Key factors include the initial premium, total policy duration, and the specific date the policy is canceled. For example, if a $500 premium covers a 60-month loan and is canceled after 30 months, the refund is calculated using the formula: (Original Premium / Total Policy Term in Months) Remaining Months. Some providers may deduct administrative or cancellation fees, typically ranging from $25 to $50, from this calculated amount, which can reduce the final refund.

Gathering Necessary Information for Your Refund

Before initiating a GAP insurance refund request, it is necessary to collect specific documentation. This information helps confirm eligibility and provides the details needed for accurate processing. Having these documents readily available can significantly streamline the refund process. You will need:
Your GAP insurance policy number, found on original policy documents or loan agreements.
The original purchase agreement or loan contract, detailing the initial GAP premium and term.
Proof of loan payoff, vehicle sale, or refinance, such as a payoff letter, bill of sale, or refinance documents.
Current contact information, including your address and phone number, to ensure the refund reaches you.

Submitting Your Refund Claim

Once all necessary information has been gathered, the next step involves formally submitting your refund claim. The party responsible for processing GAP insurance refunds can vary, often being the auto lender, the dealership where the vehicle was purchased, or the direct GAP insurance provider. Reviewing your original loan agreement or GAP policy documents can help identify the correct entity to contact for cancellation procedures.

Common methods for submitting a claim include:
Contacting customer service via phone.
Sending documents through email.
Utilizing an online portal.
Mailing physical copies.

During your initial contact, inquire about specific forms and be prepared to provide all collected information, including your policy number and proof of payoff. After submission, you should receive a confirmation of receipt. Providers typically advise an estimated processing timeline of four to eight weeks. Refunds are commonly issued as a check mailed to your address, though some providers may offer direct deposit.