Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Nov 18, 2020

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Can I Get a Gap Insurance Refund?

Here's what you need to know...

  • When you buy a new car, its value begins to depreciate immediately
  • GAP insurance bridges the “gap” between what you owe on a car and the car’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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What are the Alternatives to Dealer GAP Insurance?

Vehicles depreciate after they are purchased, and this depreciation can take a severe hit on your wallet if you file a 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.

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.

Insurers 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 insurer will only issue a check for the actual depreciated value of the car minus your deductible. You will then be left to pay the difference on balance on the loan out of pocket.

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Should I Get GAP Coverage?

Adding GAP insurance coverage may be a good idea, one that could save you a lot of money if your vehicle suffers an accident, or is stolen. When someone leases their vehicle, they remain responsible for the vehicle’s cost if it is in an accident. GAP could be a great asset in the case of leasing a vehicle. When financing a vehicle, GAP insurance has value. Vehicles depreciate, some more quickly than others. With that being the case, you would want to research before making the purchase and also consider a GAP insurance policy.

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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.

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.

Where to purchase GAP Insurance?

GAP insurance is able to be added to your auto policy. It can also be bought as a separate policy via lenders. You should be sure to verify with your provider that they offer it. Read the fine print in the contract, and if GAP insurance is not something you wish to add, then have the GAP coverage removed. How much GAP insurance will cost will vary depending on the provider you’ve chosen. It could range from under $10 monthly to under $50 for the year. So, it will be important to research the providers and shop around. The dealership could be charging something expensive, and you could get a cheaper rate if you just added it to your existing policy.

When Should I Not Purchase GAP Insurance?

Every driver does not need GAP insurance. If the car costs more than the payment amount, then the coverage is pointless. Having a GAP waiver is another reason to avoid purchasing GAP insurance. If there is a total loss, the lender has agreed to waive the difference between the amount owed on the car and the actual cash value. Buying GAP insurance coverage through the dealership could cost more money in the long run. Basically, if you finance you will be paying more because of the interest charged on your rates in addition to money financed to buy the car.

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How Can You Get a GAP Refund?

If you pay your vehicle loan off early, you will be entitled to a partial refund for the GAP insurance coverage 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.

To get a GAP insurance refund, you will want to check your policy’s terms and conditions. This will ensure your eligibility for a refund. GAP insurance coverage companies may have various terms as well as fees. You could likely get a GAP refund if the contract was canceled within 30 days of getting your coverage, or policy.

Getting a GAP insurance refund comes with some options. Ways to get a refund can include: emailing, phone, letter writing, visiting an office in-person, and more. It’s imperative that you verify with your provider about the correct option.

What Are the Alternatives to Dealer GAP Insurance?

You are not obligated to buy a GAP insurance policy at the car lot. 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!