Depending upon how much money you’re borrowing on your auto loan, you might have the chance of having a Refund for gap insurance.
Gap Insurance can be bought at many car dealerships or car insurance agencies. A gap insurance policy is available to borrowers who can’t pay back a loan amount when the car is totaled or stolen. In some situations, you may not require this insurance coverage when your vehicle’s worth exceeds what you owe it.
You are eligible for a Refund for gap insurance only after canceling the gap insurance policy before its effective period.
But Can you get a gap insurance refund? When should you ask for a refund? How do you claim for gap insurance refund? Can the company deny you the refund and why? All answers and much more are covered in this article. Do you have different questions, see the article contents below.
Page Contents
What is GAP insurance?
Gap insurance is coverage that covers the difference amount between the current market value of your car and what you owe in loans or lease fees for the same car. Assume the market value of the car you are driving is currently $15,000 but your auto loan still demands $19,000 then your gap insurance will cover $4,000 if it is totaled or stolen.
Is gap insurance worth it?
It depends on your current financial status and how good financially you will be during the entire time you will be financing your car. If you think you are in a position to cough out good money to pay off what you owe on the car, you better neglect it.
Your personal car insurance usually covers other risks so if you are in a good financial situation now and in the future, gap insurance is not worth it. I have seen situations when gap insurance is included in your comprehensive or collision so you may want to find out from your broker or insurance provider.
How does gap insurance refund work?
We all know cars depreciate very fast. If you bought your car today at $25,000 and because of unavoidable circumstances decide to sell it a day after, it is not a surprise that the buyer will not pay you all $25,000. In fact, your car could be sold for an amount less by $500 or more.
According to my insurance broker, any new car depreciates by 20% after the first year. So, the car you bought for $25,000 today will only fetch $20,000 after 12 months.
If you took a car loan and pays only $2,000 yearly. You still owe $23,000 on the same car after the first year. Should this car be totaled or stolen, your personal car insurance will pay or reimburse the current market value which is $20,000 yet you still owe $23,000 on the car.
If you have no gap insurance, you will be tasked to pay the difference between what you owe on the car ($23,000) and the actual cash value (market value = $20,000) of your car. If you were smart enough and carried gap insurance, then this difference ($3,000) will be reimbursed by your gap insurance coverage.
How can I cancel my GAP insurance and get a refund?
Assume you bought gap insurance worth $12000 spread over 12 months. You can decide to cancel your gap insurance anytime as long as you inform your insurance agent in time. Just call your insurance broker or company and tell them you want to cancel your subscription.
Go fill out some paperwork and prove to them you do not need it anymore, and boom! you will receive your check-in couple of days. Of course, there are some little hassles involved. Read on to find out the details.
How do I know if I have gap insurance?
Yes, you could already be carrying gap insurance. Here is where you should double-check to know if you already have gap insurance or not:
- Your standard car insurance. I already told you how gap insurance is sometimes included as an add-on to your comprehensive or collision car insurance coverages.
- If you leased your car, car dealerships sometimes include this coverage in the deal.
- Gap insurance is also provided by auto loan dealers. You may need to find out from your dealership or bank.
Should you discover you have no coverage after reviewing those possible ways, you can decide to buy it as stand-alone coverage either from your dealership or by visiting your personal insurance company. Of course not all insurance companies offer Gap insurance, Scroll to the bottom of this article to know examples.
What are GAP insurance refunds?
Gap insurance refunds the money for the period you do not intend to use. Assume you bought 24 months of $5000 Gap insurance for your $20,000 financed car. Let’s say after just 12 months, your car loan is paid off meaning you don’t need your gap insurance anymore.
In such a scenario as above, the dealership or your insurance agent still owes you a whopping 12 months of unused gap insurance since your car loan was paid off very early. Here, you should be entitled to $2,500 (half of $5,000) as a gap insurance refund.
Though different companies have different methods they use to compute your refunds, the above method offers general clues. You are supposed to get all the money for the unused period as far as gap insurance is concerned.
when does gap insurance not pay?
It is not a guarantee that your refund claim will always be honored. Every insurance policy carries terms and conditions and your coverage will always hold as long as terms and conditions are observed.
You will not get a gap insurance refund if:
- Few companies will refuse if you sell off your car, then the company will not give any refund. Gap insurance covers the difference between actual cash value and what you owe on the car if it is totaled or stolen. Selling your car is not an insurable risk.
- If your claim is against any standard liabilities like comprehensive, collision, or liability is denied, gap insurance will not pay. You are not supposed to get profits from double claims.
- Your gap insurance won’t pay if you damaged or lost your car while using it for commercial activities.
- You have an option of either paying your gap insurance monthly or paying a lump sum. Your gap insurance will not pay if you stop paying your premiums.
- Gap insurance is a ‘one-type cover’ policy. You just claim once your car is written off, and it is done. You can not claim twice from the same policy.
- If the difference between the actual cash value and what you owe on the car is $0, then there is no ‘GAP’! You will not file any claim because there is no amount in the ‘GAP’ for payout.
How to calculate a GAP Insurance Refund?
If you bought your car today morning and made up your mind to sell it the same day evening, your car will have depreciated by 11%, mind-boggling right? Should you decide to sell it off 12 months later (1 year), experts will tell you that your car has already depreciated by 20%.
Assume took a $20,000 car loan and deposited just $1,000. Assume you will be paying $1000 as your monthly installment towards financing your car. Assume you bought Gap insurance worth $2,000 for a period of 36 months and by luck, your car loan is paid off after just 24 months, then you can see that you still have 12 months left on your gap insurance policy.
To calculate a rough estimate of your refund, your gap insurance divided by 36 months ($2000/36 months) equals a monthly amount of $55.6. Your rough estimate of gap refund = 55.6 x 12 months left on your period and this equals = $667.2. If all terms and conditions are observed, you will get $667.2 as your Refund for gap insurance.
As I already mentioned, every company or car dealership has its own way of computing how much they owe you as a gap insurance refund. You should reach out to your insurance company or dealership to understand everything they considered to arrive at the refund estimates.
When You Can Get a GAP Insurance Refund?
- You should get a gap insurance refund if the period your coverage was supposed to last is cut short.
- You will not receive a refund if your car is totaled. Instead, you will use your Gap insurance to cover what you still owe on the car in case your actual cash value is less.
- Some companies will refund part of your unused money if you decide to cancel your insurance, while others have deadlines you should meet.
What does GAP insurance exclude?
Just like standard car insurance coverage, Gap insurance is designed to give you peace of mind because you’ll know you are covered should you suffer losses on your leased or financed car just before it is totally paid off.
Nevertheless, gap insurance comes with so many exclusions you should be aware of. According to EasyGap, the following are some of the exclusions you should be aware of:
- Any loss where your car is not totaled or written off. Gap insurance pays the difference between the actual cash value and what you still owe in loans. Your car must be totaled or stolen for Gap insurance to take effect.
- If your car is driven by another person not listed as the named driver on your standard auto insurance. Should your car get totaled as result, then gap insurance will not take effect.
- Gap insurance is not normally available if your car is more than 8 years or if your odometer reads more than 80,000 miles.
- Cars that are highly risky for instance racing or rallying cars. Such cars are too expensive for many insurance companies and so is Gap insurance.
- You may also be denied Gap insurance if your car weighs more than 3500kg in weight.
How do you cancel gap insurance coverage?
It is advised to cancel your gap insurance only when:
- The amount left in loans is less than the current market value of the car. If the money you owe on the car is less than the current market value of your car, then there is no ‘Gap’ hence no need for coverage.
- If you have a lease policy then you could think of canceling your gap insurance.
You will need to contact your insurance broker or company and give them a cancelation notification. You may need to walk in and fill out paperwork and submit proof of your odometer reading and other supportive documents.
Things may get a little complicated if you bought your coverage from a car dealership but at the end of the day, you should be able to get a refund for the number of days you did not use the coverage.
How long does it take to get a gap insurance refund?
From all the sources I contacted, you should get your refund in 4-6 weeks after notifying your company of the need to terminate the coverage. You should submit all the required paperwork in time to quicken the process.
Having gap insurance is not a requirement by the law but many dealerships won’t let your drive away the lot with no either gap insurance or a lease policy. You will also be asked to buy a collision, comprehensive, and liability policy on any financed car or leased car.
Why should I get GAP insurance?
It is the best idea to purchase Gap insurance coverage for your financed or leased car if:
- You paid less money as your down payment. The rule of thumb is that buy this coverage if you paid less than 20% as your initial deposit.
- If you intend to finance your new car for more than 60 months period, then make sure you purchase gap insurance.
- You must purchase this coverage if you leased your car.
- Some vehicles depreciate very faster compared to others. Consider buying the coverage if you think your car could depreciate very fast.
How is GAP insurance cost calculated?
If you took up a car loan, how do you calculate Gap insurance? If you are 2 years down the road paying up your loan installments, How do you get your gap insurance costs? Well, here we go.
The formula for calculating your gap insurance is simple. Get the current market value of your car and take it off the amount you still owe on your car (balance on your car loan). The remainder is what it will cost you as Gap insurance.
Here is an example of how to calculate Gap insurance cost.
Assume the current market value of your car (C) = $20,000
Balance on your car loan (B) = $25,000
Gap insurance costs (B-C) = $25,000 – $20,000 = $5,000.
When to drop Gap insurance?
As you pay bits of your car loan, your ‘GAP’ keeps going down such that it is worth dropping off Gap insurance if the difference is $0 or if the actual cash value of your car is greater than what you still owe on your car loans. So, in the example above, consider dropping your car insurance if (C) is greater or equal to (B).
Can you get a gap insurance refund when your car is paid off?
Getting a Gap insurance coverage refund is very easy. Equipped with the right paperwork, inform your gap insurance provider and kick start your cancelation process.
What do you need to cancel gap insurance?
You will need things like; odometer readings, gap insurance cancelation forms, and proof of completed loan payment.
Once you submit the above documents, you should be entitled to whatever portion of the coverage you did not use. It should not take you more than 4-6 weeks to receive your gap insurance refund in normal circumstances.
Can I file a GAP insurance refund lawsuit?
According to SHAMIS & GENTILE PA law firm, you should get a gap insurance refund if:
- You carry gap insurance on your purchased car.
- You paid off your car loan very early before the stated time.
- Your car was totaled just before your loans were paid off.
- No refund was received from your lender.
If the above conditions are all TRUE, yes you should file a lawsuit against your lender for a refund. The truth is that you should always receive your money back if your Gap insurance is not used up for the agreed period. This refund should be in form of cash or reimbursement for the amount you still owed on your car loans.
Can you get a gap insurance refund after a trade-in?
One of the ways you qualify for a cash refund from your Gap insurance include:
- If you paid off your car loan very early before the stated period.
- If you decided to switch car insurance companies.
- If you decide to sell or trade your car.
Here is an example where you get a gap insurance refund if you trade in your car. Assume you got a car that costs $35,000 and took up a car loan worth $25,000. On the same note, assume you decided smartly and took up 12 months of Gap insurance to protect you financially in case the car is totaled or stolen before you had a chance to pay off your loan.
Should you decide to cancel your gap insurance after 3 months due to any of the reasons listed above, you should be entitled to a refund for the 9 months of coverage you did not use. Make sure you file for a refund once your car is legally sold off (car not in your name anymore).
Considerations for Canceling Your GAP Insurance.
Before canceling your Gap insurance, make sure there is no ‘GAP’ between the balance on your car loan and its current market value. The major role of gap insurance coverage is to protect you financially in case your car is stolen and you still owe money on that car.
You are entitled to a full refund if you cancel your coverage within 30 days after purchase otherwise your refund will depend on the period you have used the coverage.
If you decided to change insurance companies or you sold off your car, take it up to yourself and submit the required paperwork and proof you no longer own the car.
Can I get a refund if I never used the GAP coverage?
Let’s say you buy a gap insurance coverage today and for a reason, you decide to cancel it after 1-3 weeks. In this situation, your company will refund you the full amount you paid. Canceling within 30 days entitles you to a full refund. So the answer is yes, you will get a refund if you never used the Gap coverage.
How long does Gap insurance last?
The gap insurance coverage pays up the difference between your car loan or your lease fees and the current market value of your car. If the remaining balance on your car loan or lease fee is $10,000 and the current market value of your car is $8,000, then the smart decision is to continue carrying this coverage because there is still ‘A GAP’ to be covered.
You typically need this coverage as long as there is a ‘GAP’ you need to protect as explained in the example above. Once your car loan is paid up, or you totaled your car, consider dropping Gap insurance.
Most people decide to hold Gap insurance for 1-3 years because by this time the ‘GAP’ is either zero, or the cash value of your car is greater than the loans or lease fees you still owe on your car.
State farm gap insurance
In the US, State Farm is one of the biggest suppliers of auto insurance, property, and casualty insurance. According to the 2019 Fortune 500, State Farm ranks number 36 amongst the top revenue companies in the USA.
Since its founding 100 years ago, State Farm has assisted people in reducing the hazards associated with daily living, rebuilt neighborhoods, made investments in our local communities, and supported national programs in education and safety.
Does state farm offer gap insurance?
If you are living in the USA, you should definitely check out State Farm for their excellent services like:
- Great insurance coverages
- Easy and excellent insurance claim services and.
- Competitive insurance prices
Looking for any insurance services, State Farm offers the following insurance policies:
- Car protection with car insurance
- Motorcycle Insurance
- Boat Insurance
- Motorhome insurance and
- Off-road vehicle insurance.
Out of the many insurance services available, State Farm does not sell Gap insurance. If you decided to get a car loan, you will be offered a feature called Payoff Protector from State Farm Bank that protects you if your car is totaled.
Does Geico offer gap insurance?
Geico or the Government employee’s Insurance company is private American automobile car insurance headquartered in Chevy Chase, Maryland. Geico is the second largest auto insurer in the USA coming second to State Farm.
Geico specializes in several insurance coverages like:
- Auto insurance
- Homeowners Insurance
- Renters
- Motorcycle
- Boat and others.
Just like State Farm, Geico currently offers no gap insurance. You may need to confirm with your financing company or dealership to find out if Gap insurance is available to you.
In summary Gap insurance is the coverage you need to protect yourself financially if the car you leased or the car you are financing is totaled or stolen before it is paid off.
