Can You Cancel Gap Insurance Anytime? Understanding Your Options

Gap insurance is an optional add-on coverage that pays the difference between what your car is worth and what you still owe if it’s totaled It protects you from being “upside down” on your loan,

But what if you change your mind and want to cancel your gap policy? Can you do this anytime? What about getting a refund if you just bought it?

In this comprehensive guide, we’ll explain how cancelling gap insurance works, when you can cancel, your refund rights, and tips for switching providers.

What is Gap Insurance?

Gap insurance, also called GAP coverage, is designed to pay off your auto loan if your vehicle is totaled. Here’s a quick recap:

• It covers the “gap” between the car’s depreciated value and the remaining loan balance.

• Without it, you’d have to pay this difference out-of-pocket if the car was totaled.

• It typically costs $10-$15 per month when bought properly Dealers massively overcharge.

• It makes most sense on newer cars since depreciation is highest initially.

• You can cancel it once you’re above water on the loan as the car ages.

Now let’s look at cancelling gap insurance and whether you can get a refund.

Can You Cancel Gap Insurance at Any Time?

In most cases, yes – you can cancel a gap policy whenever you want. There are a few exceptions:

• Leased vehicles often require you keep gap for the lease term.

• Some lender GAP policies only allow cancellation if you refinance or pay off the loan.

• Policies bought through dealers tend to have tighter cancellation rules.

But for a standard GAP policy that you purchased separately, you generally can cancel anytime by contacting your insurance provider. There is usually no fee or penalty to cancel.

However, you don’t want to cancel GAP coverage until you’re sure you no longer need it. Otherwise, you risk being upside down if the car is totaled.

When Does It Make Sense to Cancel Gap Insurance?

Here are some common scenarios where canceling your gap policy could be reasonable:

• You pay down the loan balance to where it’s equal to the car’s value. Gap is no longer needed.

• You sell the car and no longer have a loan to cover.

• You refinance the loan to much better terms and rate.

• You’re switching insurance providers and want to consolidate GAP with them.

• The car is getting older and the loan balance is low enough you could cover any small gap.

You generally want to avoid canceling GAP unless one of these factors applies. Otherwise, you put yourself at risk of personal financial loss.

How Does Gap Insurance Refund Work?

If you cancel your GAP policy early, you are typically entitled to a pro-rated refund representing the unused portion of the premium you pre-paid.

For example, if you paid $600 upfront for a 3-year policy but cancel after 1 year, you’d get back roughly $400 – the 2 years of unused premium.

Refund calculations vary by state and insurer, but every month of unused coverage entitles you to a refund. Cancellation fees or penalties are rare.

To get your refund after cancellation, simply contact your insurance provider. Ask them to process a pro-rated refund for your unused GAP premium. You should receive a check within 2-3 weeks in most cases.

Tips for Cancelling and Switching Gap Insurance

Follow these tips when cancelling one GAP policy to switch to another provider:

• Shop for a new policy first so there is no gap in coverage. Get quotes from insurers.

• Choose a start date for the new policy before the prior policy will be cancelled.

• Cancel the old GAP only after new coverage is in force. Check policy documents.

• Inform your agent of the change so they can help manage the transition.

• Contact the old insurer to cancel and request your unused premium refund.

• Send cancellation in writing via certified mail so you have records.

• Follow up if the refund is not received within 30 days. File a complaint if needed.

With some care and planning, you can change gap insurance anytime risk-free. Just don’t actually cancel coverage until new protection is in place.

When Can You Cancel Gap Insurance After an Accident?

If you have an accident and file a total loss claim on your standard auto policy, your GAP coverage will pay out to cover the remaining loan balance.

At this point, your loan is satisfied and gap insurance is no longer needed. The policy can be cancelled.

In fact, your insurer will typically cancel it automatically once they pay the claim. But follow up with them to be sure.

You are only entitled to a partial refund of unused premium in this case, not the full unused amount. The accident is considered the end of the policy term, even if months remained.

Can You Cancel GAP Immediately After Buying a Car?

Yes, you can cancel gap insurance immediately after purchasing a new vehicle if you act quickly.

Many states have “free look” periods that allow you to cancel certain insurance policies within 10-30 days of signing up for a full premium refund.

GAP coverage sold by dealers and some lenders falls into this category in some states. Review your policy documents and state insurance rules to see if this free look applies.

If so, send written cancellation notice within the allowed window and you can back out with no cost.

Is It Difficult to Cancel Gap Insurance?

Cancelling a standard gap policy is generally straightforward as long as you follow some key steps:

• Review your policy to confirm cancellation is allowed and any notice periods.

• Have replacement coverage in place before cancelling if still needed.

• Send written cancellation notice via certified mail to your insurance provider.

• Follow up if you don’t receive your refund check within 30 days.

• Consult your state insurance department if the insurer refuses to cancel or refund premium.

• Be prepared to fight extra hard for cancellation if you bought GAP through a shady dealer.

While most reputable insurers make it easy, less ethical outfits may stubbornly resist cancellation or avoid sending refunds. But stay persistent and escalate complaints until you get resolution.

The Bottom Line on Cancelling GAP Coverage

Cancelling gap insurance is your right in most cases, as long as you do it responsibly and safely. Don’t risk financial exposure by cancelling too early. But once protected, get your unused premium back.

Shop around for better rates once a year or when your situation changes. With a little diligence, you can optimize GAP coverage and pricing over time. Just drive safely – totaling your car makes cancellation pointless!