How To Get a Gap Insurance Refund

Help filing your car insurance claim after an accident
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Gap insurance can protect your assets if a thief steals your newly financed or leased vehicle, or if you total the car in the first couple years of ownership. Cars depreciate rapidly, and collision and comprehensive coverages don’t provide all the protection you need for new cars. If you total your ride shortly after purchasing it, the insurance settlement you receive probably won’t provide enough funds to pay off your auto loan. In many cases, gap insurance coverage can bridge that gap.

Some car insurance companies offer the purchase of gap insurance, typically adding the coverage as an endorsement or rider to your auto policy, or through a car dealership or finance company. While gap insurance makes good financial sense for new vehicles, you can cancel the coverage after reducing your auto loan. And, if you cancel before the end of a policy term, you can request a refund for unused coverage.

Learn more about how gap insurance works and how it may impact you. 

What Is Gap Insurance?

Guaranteed Auto (or Asset) Protection, commonly called “gap insurance” or "loan/lease gap coverage,” is a valuable type of protection for newer financed and leased vehicles. If your car is stolen or totaled, gap insurance can help pay the difference between the current value of your vehicle and the amount you still owe the lender.

Cars depreciate quickly, dropping approximately 20% in the first year of ownership. Over the next four years, the car will lose roughly 15% of its value each year. If your vehicle is stolen or totaled, the insurer will only pay its actual cash value, which deducts depreciation. For example, if you finance a vehicle for $15,000 and it is totaled after one year, the insurance provider will likely settle for no more than $12,000.

If you still owe more than $12,000, you’re on the hook for the difference. But if you have gap insurance, the coverage can help pay the outstanding balance.

Is Gap Insurance Required?

If you lease a car, leasing companies often require you to carry gap insurance. In most cases, it is included in your lease agreement at no additional charge. If it’s not included, you can purchase the additional coverage.

Typically, lenders don’t require gap insurance for financed cars, but you can sometimes buy the coverage through the lender or the auto dealer. Lenders and car dealers often sell gap insurance for a set premium of $500 to $700, according to United Policyholders. If you buy the coverage from a dealer or lender, though, they may incorporate it into your loan, adding interest to the cost.

Typically, you can buy the coverage for much less from an auto insurance company—if the provider offers it. Usually, carriers offer gap insurance as a rider or endorsement to auto policies.

If your lender doesn’t require gap insurance, it might be worth it to consider buying the coverage. Do so if you owe more on the auto loan than the vehicle is worth.

What Does Gap Insurance Exclude?

Even if you purchase gap insurance, it won’t cover everything you might owe a lender or leasing company, including:

  • Costs not covered by the insurance settlement for prior damage, storage, towing, or wear and tear
  • Balances carried over from previous leases or loans
  • Extended warranty costs
  • Lease security deposits
  • Penalties imposed by a leasing company for excessive mileage
  • Overdue payments
  • Non-OEM equipment added to the vehicle, such as stereo or GPS systems

When Should You Cancel Your Gap Insurance?

If you add gap insurance to your auto policy, you can cancel the coverage after your loan amount drops below the car’s value. Often, an auto loan balance will dip below the car’s value after about two years of payments. You can also drop gap coverage if you pay off your loan early, or trade or sell the vehicle.

To check the value of your car instantly, use Kelly Blue Book or Edmunds.

If you lease a car, the lease agreement may require you to keep the coverage until the end of the contract term. Likewise, if a lender requires you to buy gap insurance, the finance agreement may require you to keep the coverage until you pay off the loan. Consult your lease agreement or loan contract for details.

The lease agreement, insurance contract, or your state’s insurance code may determine the gap coverage limit. If you purchase gap insurance from a lender, you may incur an early termination fee when filing a gap coverage claim.

How To Get a Gap Insurance Refund

If you decide to drop gap insurance during a coverage term, you can apply for a refund. The insurer may not notify you that you are due a refund and likely won’t automatically reimburse you. In most cases, you will be refunded the amount of your coverage that is unused.

Some entities, including Navy Federal Credit Union and Bellwether Community Credit Union, give you the option to refund gap insurance if you do so within a specific time frame. You are typically entitled to a full refund if you cancel within 30 days after the policy’s start date. The details depend on policy and state laws.

If you purchased gap coverage directly from an insurance provider, contact your agent to cancel the policy and request a refund. If you purchased gap insurance from a dealership at closing, you may have paid an upfront premium that covers the car for several years. 

Requesting a refund for gap insurance purchased from a car dealership will require following a few steps.

  1. Review the terms and conditions of your policy to determine if the cost of gap insurance is included in your car’s financing. Contact the dealer and request all paperwork required to discontinue the coverage.
  2. Know the mileage of your vehicle, and ensure it is verified, in order to get a refund. Get an odometer disclosure statement to verify your car’s mileage. You can obtain the statement from the dealer.
  3. Contact the lender to request the documentation needed to request a gap insurance refund for the unused portion of your coverage.
  4. If you are selling or trading your car, don’t cancel gap insurance until after completing the transaction. In some cases, you can contact the insurer directly, and in others, the dealer can provide the proper paperwork to cancel the coverage.
  5. When canceling gap insurance provided by a dealership, you will need to submit several things to the insurer. This includes the cancellation and refund paperwork, the odometer disclosure statement, and the proof of sale, if you sell or trade the vehicle. If you drop the coverage after paying off your car loan, you may also need to submit a copy of the payoff letter, which should include details of the gap insurance balance.

What To Expect When Asking for a Gap Insurance Refund

Once the process is complete, the insurance provider will cancel your policy and issue a refund, usually in the form of a check. The refund process for gap insurance policies can take a few days, or as long as six weeks.

How long it takes to receive your refund depends on who provided the gap insurance in the first place. It can take longer if it was provided by a dealership rather than an insurance provider directly, for example.

Frequently Asked Questions (FAQs)


How long do you have to continue gap insurance? 

You should continue gap insurance coverage until your loan amount drops below your car’s value. You can also cancel the coverage when you sell or trade a vehicle, but wait until you’ve completed the transaction to do so. If gap insurance is required by a lease or finance agreement, consult the contract to determine how long you must continue gap coverage.

How much does gap insurance cost?

If you purchase gap insurance through an auto dealer, you may pay a premium of around $500 to $700. When buying gap coverage directly from an insurance company, the carrier will base your premium on several factors, including your age, your location, your automobile’s actual cash value, and your claims history.

How do I know if I have gap insurance or will need to have it? 

If you lease a car, the leasing company may include gap insurance in the agreement. This should detail the terms of the coverage. If your finance or lease agreement doesn’t include gap insurance, you’ll have to buy a policy from an auto insurance company. Typically, insurers offer gap coverage as an endorsement or rider to car insurance policies.