GAP insurance makes good financial sense when you buy a new car, but it is not a state requirement. As long as your lender or the dealership does not require the extra coverage, it is usually easy to cancel. Many dealerships offer GAP insurance as an added extra when you buy a new car, and it’s easy to accept because the premium gets rolled into your car loan. But what happens if you change your mind or don’t need the GAP insurance anymore? Find out how to cancel GAP insurance.
What Is GAP Insurance?
Guaranteed Asset Protection (GAP) is a type of insurance that covers the difference between what your car is worth and what you still owe if your vehicle is totaled in an accident. It’s no secret that new cars depreciate quickly as soon as you drive them off the dealership lot, and when you take out a loan to pay for a new car, you might find yourself in a situation where you owe your lender more than the value of the car. If you get into an accident and total the car, your insurance company will only give you its fair market value. If this happens, GAP insurance will pay the difference between what you owe and what your insurance covers.
Is GAP Insurance Required?
GAP insurance is not a state requirement like minimum liability insurance. If you lease a new vehicle, the leasing company might require you to carry it and even offer it as part of your lease agreement. If you take out a loan for a new car, you can usually purchase GAP insurance from the dealership or an insurance company, but it is not required.
Can I Cancel GAP Insurance At Any Time?
Because GAP insurance is not a legal requirement, drivers can cancel it at any time. However, you might want to reconsider canceling if you just bought a new vehicle. It’s the best way to protect yourself from owing money on a new car you can’t use after an accident, and the cost is relatively inexpensive compared to what you might have to pay if you total a new car.
Who Issues GAP Insurance?
Car dealerships and auto insurance companies offer GAP insurance. Dealerships will likely offer the coverage when you buy or lease a new car, but it is often more expensive than if you get it through your auto insurance company. Also, when you buy it from a dealership, it’s added to your loan, and you end up paying interest on it. The better option is to contact your provider and ask to have it added to your policy.
How Do I Cancel GAP Insurance?
You can cancel your GAP insurance in just a few quick and easy steps:
- Review your policy. It’s important to review the original GAP insurance contract and loan or lease paperwork to make sure it doesn’t have any contingencies, such as a GAP insurance requirement as part of a lease.
- Gather all your paperwork. To cancel your gap insurance, you’ll need your policy information, details about the covered vehicle, and information about all drivers.
- Contact the GAP insurance provider. Whether you have your insurance through the dealership or an insurance company, your contract should include the provider’s contact information. Explain that you want to cancel the policy and provide details if needed.
- Complete any necessary forms. Some providers have a form you’ll need to complete to cancel your policy.
- Pay any fees or request a refund. Some companies require a cancellation fee to cancel the policy and remove the insurance. You might get a refund if you paid for the entire policy in full. Go over this with the insurance company when you cancel.
- Request verification of the cancellation. Always make sure you get a confirmation in writing that the company canceled your policy. If you don’t receive it within a reasonable time frame, contact the insurer.
Canceling GAP insurance you bought from a dealership is sometimes more complicated than if you had bought it from an insurance company. Dealerships will often add the premium to your monthly car payment, so they will need to recalculate this amount when you remove the extra insurance.
When To Cancel GAP insurance
Before canceling your GAP insurance, you’ll want to make sure it is a good idea to do so. Here are some things to consider before canceling:
- You can safely cancel your policy if the amount you owe on your auto loan is less than the car’s fair market value. Once you’ve made enough payments on your loan, you don’t need the gap insurance. Run the numbers first, and only cancel the insurance when it no longer makes financial sense to keep paying for it.
- You will also want to cancel your gap insurance if you pay off your loan early or sell the vehicle.
- You should not cancel your policy if you are upside down on your loan. This means you owe more than what the car is worth.
How Do I Get A GAP Insurance Refund?
Many drivers will get a refund for their unused GAP insurance premium. This usually only happens if you paid the premium in full, although you might still be eligible for a small refund if you pay monthly. If the insurance company doesn’t automatically send you a refund, call or email your provider to find out if you have a refund coming.
Buying GAP insurance is a smart idea when buying a new car with a small down payment. When you get to a point where you no longer need the policy, it’s also a smart idea to cancel it. Keep track of where you stand, and once you can cancel the coverage safely, you just need to contact your provider or the dealership and request a cancellation.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.