Can I get GAP insurance refund when my car is paid off?

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Here's what you need to know...

  • When you purchase a new vehicle, its value begins to depreciate immediately
  • GAP insurance bridges the “gap” between what you owe on a vehicle and the vehicle’s depreciated value
  • You can get a refund on a portion of your GAP coverage if you pay off your loan early

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Vehicles depreciate after they are purchased, and this depreciation can take a severe hit on your wallet if you file an insurance claim while the vehicle is still somewhat new.

When you are buying a brand new car, the car loses an estimated nine percent of its value just one minute after the contracts are signed. The car will only continue to depreciate throughout the years to come and will retain only 49 percent of its value after four years.

It is up to you to select the right features and shop around for others that you can purchase after you drive the car home. Start comparing car insurance rates now by using our FREE tool below!

What is GAP insurance and how does it work?

One add-on feature you will be offered if you are financing the car is GAP insurance.

Guaranteed Auto Protection (GAP) is a supplemental form of protection that you can buy in addition to standard car insurance coverage to pay for the difference between the depreciated value of a car and the balance of the loan on the vehicle.

You may not see the importance of carrying supplemental protection to pay off your loan if you do not really understand how claims valuations are calculated.

Insurance companies are not going to simply pay off your loan when you file a claim and the vehicle is a total loss. Instead, they are going to determine how much the car was worth at the time of the incident.

The insurer is only responsible for paying up to the Actual Cash Value of the car if it is totaled or needs significant repairs. Actual Cash Value, in simple terms, is the replacement cost of the car minus depreciation.

Unless you put down a large deposit, you will more than likely be upside down on your loan from the moment you drive off of the lot.

You are considered upside down on a loan when your car is worth less than the amount you owe.

If your car is determined to be a total loss, your insurance company will only issue a check for the actual depreciated value of the car minus your deductible. You will then be left to pay the balance on the loan out of pocket.

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When is GAP a good investment?

If you are financing a car with no down payment or a small down payment of 10 percent or less, it is in your interest to buy GAP. One of the major advantages is that you will not have to pay thousands of dollars out-of-pocket for a total loss, even if you are at fault.

It is also in your interest to have the coverage if you have a longer loan term between five and seven years since this is when cars are worth half of their original value.

GAP may not be necessary for the following situations:

  • You put a large down payment
  • You plan to pay off your loan immediately
  • You get a great deal on the sales price

You should know the advantages and disadvantages before you make a choice at the dealership.

Can you get a GAP refund?

If you pay your vehicle off early, you will be entitled to a partial refund for the GAP insurance that you did not use.

When you are financing your car in the finance office, the premiums for coverage are calculated based on the purchase price and the loan term.

If you reduce the loan term, you will not get all of the coverage that you paid for in your loan.

Because of this, the company must refund you all of the premiums that were not used. You must notify the insurer and show them a payoff notice in order to have the check issued.

Alternatives to Dealer GAP Insurance

You are not obligated to buy GAP insurance at the dealer. Many standard car insurers offer their own coverage for newer cars.

Ask about this option, and you can simply add on GAP when you add the car to your policy. The benefit is that when the car is paid off the coverage can be removed.

If you want to find car insurance with a supplemental GAP option, you can start by using our FREE comparison tool below!

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