How Long Does Dealership Gap Insurance Last?
Understand when your dealership gap insurance is truly active and the key indicators that signal its completion.
Gap insurance, also known as Guaranteed Asset Protection, is a specialized coverage designed to protect car owners from a financial shortfall if their vehicle is declared a total loss. This insurance bridges the “gap” between the vehicle’s actual cash value (ACV) and the outstanding balance on the auto loan or lease. Dealerships frequently offer this product at the time of purchase, although it can also be acquired from independent insurance providers. It is important to understand that gap insurance is not an indefinite coverage; it has a specific duration tied to the vehicle’s financing.
Understanding Gap Insurance Duration
The duration of gap insurance coverage is linked to the term of your vehicle loan or lease agreement. For instance, a 60-month car loan means your gap insurance policy will extend for the same 60-month period. This ensures coverage for the period you are most likely to experience a “gap” between your vehicle’s value and your outstanding loan balance.
A vehicle’s value begins to depreciate significantly the moment it is driven off the lot, often losing 20% to 30% of its value in the first year alone. Meanwhile, the principal balance of a loan decreases at a slower rate, especially in the initial years when interest payments are higher. Gap insurance remains relevant until the loan balance falls below or equals the vehicle’s actual cash value. This point is reached as the loan matures and more principal is paid down, reducing the financial risk gap coverage addresses.
Events That Terminate Coverage
Several events can cause gap insurance coverage to end, regardless of the original loan term. One trigger is the full payoff of the vehicle loan, which eliminates the “gap” the insurance is designed to cover.
Selling the vehicle also terminates gap insurance coverage. Similarly, if your vehicle is declared a total loss by your primary insurer and a claim is paid out, the gap coverage has served its function by covering any remaining deficiency. Policy cancellation, whether initiated by the policyholder or the provider, will also immediately cease coverage.
Checking Your Gap Insurance Policy
To understand your gap insurance terms, review your original loan agreement or purchase contract from the dealership. These documents often detail gap insurance included in your financing. If purchased separately, examine your individual insurance policy documents for a listing of gap coverage or similar terms like “loan/lease payoff coverage”.
Contacting the dealership’s finance department can provide clarity. Alternatively, reach out directly to the gap insurance provider or administrator listed on your documents. When contacting any party, have your policy number, loan account number, and vehicle identification number (VIN) available. Look for information regarding the policy term, coverage limits, and any conditions that would lead to its termination.
Canceling Gap Insurance
You can cancel gap insurance early and may be eligible for a pro-rata refund of unused premiums. Identify the provider of your gap insurance, which could be the dealership, the lender, or a separate insurance company. Contact them directly to inquire about their cancellation process and refund eligibility.
You will need to provide documentation, such as your policy number, loan account number, and proof of loan payoff or vehicle sale. Some providers may require a signed cancellation form or an odometer disclosure statement. After submitting the cancellation request, refunds for pre-paid policies are processed within a few days to several weeks.