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Gap insurance can be canceled at any point, and some drivers may receive a gap insurance refund if they never use their coverage.

If you've leased or financed a vehicle, you were probably offered gap insurance by the dealership or your insurance company. Gap insurance covers the difference between what you owe on a car and what it’s actually work if it gets stolen or totaled.

However, there comes a point when you might decide that having gap insurance is no longer worth it. Fortunately, gap insurance isn’t mandatory, so you can choose to drop the coverage at any point.

KEY TAKEAWAYS
  • Gap insurance pays off your loan if your leased or financed vehicle gets totaled or stolen.
  • Unlike car insurance, gap insurance is not legally required, and you can cancel at any time.
  • It often makes sense to cancel gap insurance once your loan balance is less than your vehicle's actual cash value.
  • Drivers who pay their gap insurance premium upfront may receive a refund when they cancel their policy.
  • You can buy gap insurance policies through a dealership, finance company or auto insurance company.

Can I cancel gap insurance coverage at any time?

Drivers are allowed to cancel gap insurance at any time, says Allyson Langhoff, a car dealership consultant 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,” adds Langhoff.

Unlike 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 decide to cancel your coverage.

When should I cancel gap insurance?

There are certain instances when it makes sense to cancel your gap insurance policy.

"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."

Ultimately, 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.

In addition, Langhoff mentions that some drivers decide to cancel gap insurance if they paid too much for coverage, decide to sell their car, or need to lower their insurance premiums to save money.

How do I cancel my gap insurance policy?

Canceling your gap insurance policy is a fairly straightforward process. Here's how you can drop your gap insurance policy and potentially get a refund once the coverage is no longer needed.

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. Langhoff explains that your car's mileage can affect how much you get refunded because mileage impacts vehicle value.

Make sure to get an official odometer disclosure statement from the dealer. Some insurance carriers don’t allow drivers to self-report the 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 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 officially canceled.

How to cancel gap insurance from a car dealer

Canceling a gap insurance policy that was bought through a car dealership is virtually the same process as canceling through a private insurance carrier. Find your gap insurance policy documents and contact the insurance provider that issues your policy. Then, you can follow the same steps as outlined above.

You shouldn't need to work with the dealership or notify your salesperson.

Frequently Asked Questions

Do you get a refund when you cancel gap insurance?

Drivers can get a gap insurance refund when they cancel gap coverage.

"If the gap insurance premium was paid in full, you will likely get a refund for the difference," says Langhoff. "However, the amount will usually depend on how long it has been since the car's purchase."

Keep in mind that if you opted to pay your gap insurance on a monthly basis, you may not get a gap insurance refund. If you do get money back, you will probably get a much smaller amount.

Can you remove gap insurance from a car loan?

Yes, you can remove gap insurance from your monthly car loan at any point, and for any reason. Gap insurance is never legally required, even as a term of your loan. Before you drop gap insurance, however, make sure it's the right decision. You can contact your insurance carrier to find out what your car is worth, and compare it to the remaining loan balance.

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