Can you cancel gap insurance?

Can you cancel gap insurance at any time?

You can cancel gap insurance whenever you like. The steps and refund depend on your contract and provider. If your car is worth more than your loan balance, the coverage no longer gives you any benefit. Check whether your lender or lease agreement requires gap coverage before canceling.

Drivers are allowed to cancel gap insurance at any time, says Allyson Langhoff, a used car dealership consultant at Superior Honda in the greater New Orleans area.

"However, canceling gap insurance is not generally recommended since it's the best way to protect your finances when leasing or financing a new vehicle,” Langhoff says.

Unlike liability auto insurance, which is a legal requirement to drive in most states, gap insurance isn’t mandatory when you lease or finance a vehicle. Gap insurance is usually paid for upfront rather than in monthly installments, so you might get some of your money back if you cancel your coverage. Gap insurance refunds are prorated based on how long you had the coverage in place.

When to cancel gap insurance

Cancel gap insurance when your car’s value is higher than your remaining loan or lease balance. At that point, there is no gap for the coverage to pay after a total loss. You should also review gap coverage if you sell, trade, refinance, or pay off the vehicle early.

"A good time to cancel gap insurance is when it no longer makes financial sense to keep paying for it,” Langhoff says. “This is usually when the remaining balance of your loan is less than the book value of your car, which is the amount you paid for the car, minus its depreciated value over time."

A gap policy is only valuable when you owe more than what the car is worth. So, if your car's value is greater than the remaining loan balance, you’re essentially paying for coverage that you will never use, even if your car is totaled or stolen.

You should also review gap insurance if you:

Pay off the car loan early.
Refinance the auto loan.
Sell or trade in the vehicle.
Need to reduce optional insurance costs.

Learn more about when you should get gap insurance.

How to cancel gap insurance

To cancel gap insurance, review your contract, contact the provider and submit any required cancellation forms. You may need proof of payoff, sale, refinance, trade-in or current mileage. Ask how the refund will be calculated and request written confirmation after cancellation.

Here's how you can drop the gap and potentially get a refund.

Review your policy: As a first step, it's always a good idea to review your gap insurance policy before you proceed with the cancellation. For example, if your gap insurance provider charges a cancellation fee, you should know that upfront. You should also look for information about how your insurance provider will compensate you once you cancel.
Get your mileage: The next step is to get an odometer disclosure statement to verify your car's mileage. Make sure to get an official odometer disclosure statement from the dealer. Some insurance carriers don’t allow drivers to self-report their mileage.
Request cancellation forms: Once you have reviewed the policy details and submitted the odometer disclosure statement, you can ask your gap insurance company for the gap insurance cancellation forms. These forms are used to request a gap insurance refund if you never had to use your coverage.
Submit the required documents: After filling out all the necessary paperwork, submit the documents to your agent or insurance company. Once they have reviewed the documents and verified the odometer disclosure statement, the carrier will determine how much of a gap insurance refund you are owed. You should receive a check or direct bank payment once your policy is canceled.

How to cancel gap insurance from a dealership

To cancel dealer-sold gap insurance, start with your contract. It should name the gap provider and explain the cancellation process. Depending on the contract, you may need to contact the provider, dealer or lender. Submit the required forms and ask about any refund for unused coverage.

FAQ: Can you cancel gap insurance?

Do you get a refund when you cancel gap insurance?

Yes, you will receive a refund if you prepaid for gap insurance and cancel before the coverage term ends. The refund amount depends on your contract, provider, cancellation date and state rules. If you pay monthly through your auto insurer, you may not be owed a refund.

Know more about gap insurance refunds and how they work.

Can you cancel gap insurance on a car loan?

Yes, you can request to cancel gap insurance tied to a car loan. Check your financing agreement first, as some lenders require gap coverage. If the coverage was rolled into your loan, the refund may be applied to your remaining loan balance.

Can you cancel gap insurance on a new car?

Yes, you can cancel gap insurance on a new car, but you should keep it if you owe more than the car is worth. New cars lose value quickly, and gap insurance can protect you if the vehicle is totaled or stolen while you still have negative equity.

Should I cancel gap insurance after paying off my car?

Yes. Once your car loan is paid off, there is no loan balance for gap insurance to protect. Contact the gap provider and ask whether you qualify for a refund for unused coverage.