If you have gap insurance and sell your car or truck, you may wonder how to get a gap refund for the policy. Gap insurance is designed to cover any gap between what your car is worth and the amount of money remaining on your lease or loan. When you sell your vehicle, the policy no longer serves its purpose, so you may be eligible for a refund.
According to the Insurance Information Institute, your car begins to depreciate the minute you drive it off the lot. Gap insurance protects you if your new car is in an accident and is totaled. The insurance covers that gap between the market value and the car's actual value. If you need to, there are ways to cancel gap insurance and get a refund for the policy after you have traded in your vehicle.
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What Is Gap Insurance?
Gap insurance is an optional coverage you can purchase when you buy a new car. Gap, in this context, is an acronym for "guaranteed asset protection." The dealership typically offers it at the time of purchase. Gap insurance covers the monetary gap between what your car is worth and the amount of money still remaining on your loan or lease. If your car is totaled in a car accident, gap insurance will pay the difference between the market value of the car and the actual value.
For example, let's say you buy a new car for $20,000 and put down a $2,000 down payment. You still owe $18,000 on your loan. The car is totaled in an accident six months later. The insurance company determines the car's market value to be $15,000. Gap insurance will pay the remaining $3,000 so it doesn't have to come out of pocket.
What happens to that money when you sell your car? You may be entitled to a refund.
Can I Cancel Gap Insurance?
Gap insurance is an optional insurance add-on and can be canceled at any time. If you decide to cancel your policy, you will need to contact your insurance company. You should also notify the dealership where you purchased the car. The Consumer Financial Protection Bureau says you should always ask to see the contract if a lender says you must have gap insurance, as it's an optional policy.
If you decide you no longer want gap insurance, you can cancel the policy at any time. Some policies will automatically cancel after a specific time frame. You will need to contact your insurance company and let it know you would like to cancel the coverage. It may require you to provide proof of insurance from another source before it will cancel the policy.
Be aware that if you bought a brand-new car and don't have gap insurance, you're on the hook for any loan still due after totaling your car or truck. It can be worth the hassle to keep your gap insurance.
How to Get a Gap Refund
If you have gap insurance and sell your car, you may be eligible for a refund on the policy. To get a refund, you need to contact your insurance company and let it know you have sold the car. You will need to provide proof of the sale, such as the bill of sale or trade-in paperwork. The insurance company will then cancel the policy and issue a refund for any unused portion.
Some insurers have policy limitations in place. Different insurers have different timelines and guidelines for canceling gap insurance. Some may automatically refund your money if you did it through your financing. Some insurance companies have policy term limits such that you must cancel within 60 days for a refund, and after those 60 days, the money is nonrefundable. It's best to contact your insurance company directly to ensure you're following the correct rules.