How to Get a Gap Insurance Refund

Help filing your car insurance claim after an accident
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Gap insurance can protect your assets if a thief steals your newly financed or leased vehicle. It can also help if you total the car in the first couple of years that you own it. Cars lose value rapidly, and collision and comprehensive coverages don't provide all the protection you need for new cars. If you total your ride shortly after you buy it, the insurance payout you receive probably won't provide enough funds to pay off your auto loan. In many cases, gap insurance can bridge that gap.

Some car insurance companies offer the purchase of gap insurance. They often add it as an endorsement or rider to your auto policy, or you may find it through a car dealership or finance company. While gap insurance makes good sense for new cars, you can cancel it after your car ages a bit. If you cancel before the end of a policy term, you can request a refund for unused coverage.

Learn more about how gap insurance works and how it may impact you.

What Is Gap Insurance?

Guaranteed Auto (or Asset) Protection, commonly called "gap insurance" or "loan/lease gap coverage," is protection for newer financed and leased vehicles. If your car is stolen or totaled, gap insurance can help pay the difference between the current value of your car and the amount you still owe your lender.

Cars depreciate quickly. A new car drops about 20% in value in the first year you own it. Over the next four years, the car will lose roughly 15% of its value each year. If your vehicle is stolen or totaled, the insurer will only pay its actual cash value, which deducts depreciation. For example, if you finance a car for $15,000, and it is totaled after one year, the insurance provider will likely settle for no more than $12,000. That's because they are factoring in the 20% drop in value. $15,000 minus 20% ($3,000) is $12,000, or the estimated actual cash value of the car after a year's time.

If you still owe more than $12,000, you're on the hook for anything above that amount. But if you have gap insurance, the coverage can help pay off what's left on your loan.

Is Gap Insurance Required?

If you lease a car, leasing companies often require you to carry gap insurance. In most cases, it is included in your lease agreement for no added charge. If it's not, you can buy it as an add-on.

Lenders don't often require gap insurance when you finance a car, but you can sometimes buy the coverage through the lender or the auto dealer. Lenders and car dealers often sell gap insurance for a set premium of $500 to $700. If you buy the coverage from a dealer or lender, though, they may roll it into your loan, adding to the cost.

You can often buy the coverage for much less from an auto insurance company—if the firm offers it. Usually, carriers offer gap insurance as a rider or endorsement to auto policies.


If your lender doesn't require gap insurance, it still might be worth it to buy the coverage. Do so if you owe more on the auto loan than the car is worth.

What Does Gap Insurance Exclude?

Even if you purchase gap insurance, it won't cover everything you might owe a lender or leasing company. These other costs can include:

  • Prior damage, storage, towing, or wear and tear that's not covered by the insurance payout.
  • Balances carried over from previous leases or loans.
  • Extended warranty costs.
  • Lease security deposits.
  • Penalties for excessive mileage.
  • Late payments.
  • Non-OEM parts added to the car, such as stereo or GPS systems.

When Should You Cancel Your Gap Insurance?

If you add gap insurance to your auto policy, you can cancel it after your loan amount drops below the car's value. This often happens after about two years of payments. You can also drop gap coverage if you pay off your loan early, or trade or sell the vehicle.


To check the value of your car instantly, use Kelley Blue Book or Edmunds.

If you lease a car, the lease contract may require you to keep the coverage until the end of the term. Likewise, if a lender requires you to buy gap insurance, the finance contract may require you to keep the coverage until you pay off the loan. Consult your lease agreement or loan contract for details.

The lease agreement, insurance contract, or your state's insurance code may determine the gap coverage limit. If you purchase gap insurance from a lender, you may incur an early termination fee when filing a gap coverage claim.

How to Get a Gap Insurance Refund

If you decide to drop gap insurance during a coverage term, you can apply for a refund. The insurer may not notify you that you are due a refund and likely won't automatically reimburse you. In most cases, you will receive a refund of the amount of your coverage that is unused.

Some entities, including Navy Federal Credit Union and Bellwether Community Credit Union, give you the option to refund gap insurance if you do so within a specific time frame. You should be able to get a full refund if you cancel within 30 days after the policy's start date. The details depend on policy and state laws.


If you purchased gap coverage straight from an insurance provider, contact your agent to cancel the policy and request a refund. If you purchased it from a car dealer at closing, you may have paid an upfront premium that covers the car for several years.

Requesting a refund for gap insurance purchased from a car dealership will require following a few steps.

  1. Review the terms of your policy to find out if the cost of gap insurance is part of your car's financing. Contact the dealer, and request all the forms you need to cancel it.
  2. Know the mileage of your vehicle, and ensure that it is verified, in order to get a refund. Get an odometer disclosure statement from the dealer. You'll use this form to verify the miles.
  3. Contact the lender to request the forms you need to request a gap insurance refund for the part you didn't use.
  4. If you are getting rid of your car, don't cancel gap insurance until after completing the sale or trade. In some cases, you can contact the insurer directly. In other cases, the dealer can provide the proper forms you need.
  5. When canceling gap insurance provided by a dealership, you will need to submit many things to the insurer. This includes the forms you need to cancel, the forms you need for a refund, the odometer disclosure statement, and the proof of sale if you're selling or trading the vehicle. If you drop the coverage after paying off your car loan, you may also need to submit a copy of the payoff letter. This letter should include details of the gap insurance balance.

What to Expect When Asking for a Gap Insurance Refund

Once the process is complete, the insurance provider will cancel your policy and issue a refund. You'll usually get it in the form of a check. The refund process can take a few days, or it may take as long as six weeks.


How long it takes to receive your refund depends on who provided the gap insurance in the first place. It can take longer if it was provided by a car dealer rather than an insurance provider, for instance.

Frequently Asked Questions

How Long Do You Have to Continue Gap Insurance?

You should continue gap insurance coverage until your loan amount drops below your car's value. You can also cancel the coverage when you sell or trade a vehicle. You should wait to cancel until you've completed the sale or trade. If gap insurance is required by a lease or finance agreement, consult the contract to find out how long you must continue the coverage.

How Much Does Gap Insurance Cost?

If you purchase gap insurance through an auto dealer, you may pay a premium of around $500 to $700. When buying it straight from an insurance company, the carrier will base your premium on several factors, including your age, your location, your car's actual cash value, and your claims history.

How Do I Know if I Have Gap Insurance or Will Need to Have It?

If you lease a car, the leasing company may include gap insurance in your contract. This should detail the terms of the coverage. If your finance or lease agreement doesn't include gap insurance, you'll have to buy the policy from an auto insurance company. These firms often offer gap coverage as an endorsement or rider to car insurance policies.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Carfax. "Car Depreciation: How Much It Costs You."

  2. Federal Reserve. "Gap Coverage."

  3. United Policyholders. "What’s UP with Gap Insurance?"

  4. International Risk Management Institute. "Probing the Gaps in GAP Insurance."

  5. Texas Department of Insurance. "Do I Need Gap Insurance for My New Car?"

  6. Guaranteed Asset Protection Alliance. "GAP Waiver Model Act."

  7. "Can I Get a GAP Insurance Refund When My Car Is Paid Off?"

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