How to Calculate a Gap Insurance Refund

Guaranteed auto protection insurance, more commonly known by the acronym GAP, covers the difference between an outstanding loan balance and a vehicle’s actual value and thus protects “upside-down” owners in a total loss accident or a theft situation.

Basic Refund Information

A gap insurance policy typically expires after the first three to four years of a car loan. However, you can always cancel the policy early if you sell the vehicle, reach a break-even point in the loan or simply decide you no longer want coverage. With regard to getting a refund, however, your insurer’s refund policy determines whether you’ll get one, and if you do, how much to expect.

In general, insurers offer a small window of time in which you can get a full refund. After this time, the refund amount is usually prorated according to the length of time the policy was in effect. Most often, there is also a cutoff point after which the policy may be cancelled but may not be refundable.

Calculation Steps

Calculate the monthly cost of the insurance. To do this, divide the purchase price of the insurance by the term length of the policy. For example, if you paid $600 and the term length is 48 months, the monthly cost is 600/48, or $12.50 per month.

Determine how many months remain on the contract. If the term length is 48 months and it’s been in effect for 12 months, 36 months remain on the policy. Refer to policy documents to see whether you qualify for a full or prorated refund.

Multiply the monthly premium by the remaining months on the policy to calculate a gross prorated refund. For example, if the monthly premium is 12.50 and 36 months remain, the gross refund is $450.

Calculate the net refund. Subtract the early cancellation fee, if one applies. The amount you’re left with is your estimated refund.