Can You Cancel Gap Insurance Anytime?

Gap insurance provides financial protection if your car is totaled, by covering the difference between what you owe on the loan and what your auto insurer pays. But is gap insurance mandatory? And can you cancel it anytime if you change your mind? This article provides everything you need to know about canceling gap insurance and getting a refund.

Overview of Gap Insurance

Also known as auto loan/lease coverage, gap insurance helps pay off your remaining car loan or lease balance if your vehicle is totaled or stolen. Here’s a quick recap of how it works:

• Covers the “gap” between the actual cash value of your car and the loan amount.

• Typically costs $300-$800 depending on your financing terms.

• Can be purchased from auto insurers, lenders, or dealerships.

• Provides peace of mind if you owe more than the car’s value.

While advantageous for many drivers with new car loans, gap insurance does come at an added cost. So you may be wondering – can I cancel gap insurance anytime if I change my mind?

Can You Cancel Gap Insurance at Any Time?

The good news is yes, you can cancel gap insurance at any time! Unlike state minimum liability coverage, gap insurance is not legally required by lenders or states.

Gap insurance is completely optional and voluntary. As a result, drivers have the flexibility to cancel their gap policy whenever they want.

Some common situations where drivers cancel gap insurance include:

• You paid off your car loan early and no longer need coverage.

• You sold the financed vehicle and got a new one.

• Your loan balance is now less than the car’s value.

• You lost your job and need to cut expenses.

• You realized gap insurance was more expensive than expected.

Regardless of your reason, you have the right to cancel your gap policy immediately or at any future date.

When Does It Make Sense to Cancel Gap Insurance?

Though you can cancel gap insurance anytime, there are certain situations when it becomes less beneficial to keep:

You Pay Off Your Loan

Once you pay off your auto loan, gap insurance no longer serves a purpose since there’s no remaining balance that would need to be covered.

You Exceed Your Loan Balance

If through payments and depreciation your loan balance drops below your car’s actual cash value, the “gap” has been eliminated.

You Near the End of Your Loan Term

In the last year or two of your loan, the gap between its value and payout is usually small enough that gap insurance is unnecessary.

You Refinance Your Loan

Refinancing resets the clock on your loan. Carefully reevaluate if gap insurance still makes financial sense.

You Want to Lower Expenses

While useful, gap insurance is an added expense. It’s reasonable to drop if you need to cut costs.

Overall, gap insurance provides the most value early in your loan term when the principal remains high. Monitoring its ongoing cost-effectiveness helps determine the ideal time to cancel.

How Does Canceling Gap Insurance Work?

The process for canceling your gap insurance policy is straightforward:

1. Review your gap insurance contract. Make sure you understand any cancellation penalties or fees.

2. Contact your auto insurance provider, lender, or dealership gap insurer. Inform them you want to cancel your policy immediately.

3. Submit any required cancellation paperwork. Provide updated vehicle mileage statements.

4. Return the gap insurance certificate, if requested by your provider.

5. The insurer will prorate any refund you may be owed and issue a check or direct deposit.

Once the cancellation paperwork is processed, your coverage will be terminated and removed from your car loan. Most insurers finalize cancellations within 2-3 weeks.

Will I Get a Refund if I Cancel Gap Insurance?

If you completely cancel your gap insurance policy, you may be eligible for a prorated refund depending on your specific circumstances:

• Paid Upfront: You’ll likely receive a partial refund based on the unused portion of coverage.

• Pay Monthly: You typically won’t get a refund since you only paid for the coverage period used.

• Refinanced Loan: Refinancing resets the gap insurance clock, so you should get a full or partial refund.

• Cancellation Fees: Some gap policies charge cancellation fees that will be deducted from your refund amount.

To receive your maximum refund, cancel gap insurance as early as possible. Paying the full premium upfront rather than monthly installments also optimizes your potential refund.

Gap Insurance Alternatives to Consider

If you plan to cancel your gap insurance, make sure you still have adequate protection:

• Increase your comprehensive and collision coverage deductibles to help offset the cost of dropping gap.

• Buy a lower-cost gap waiver if you just want basic coverage.

• Add new car replacement to get a new model if your recently purchased car is totaled.

• Evaluate your emergency fund to cover a potential outstanding loan balance in the future.

• Pay down your loan principal faster to minimize the amount that gap would need to cover.

• Refinance your auto loan for a lower interest rate and monthly payment.

Finding the right balance between gap insurance and other protections requires factoring in your budget, risk tolerance, and loan specifics.

Can I Cancel Gap Insurance on a Leased Car?

Gap insurance with leased vehicles works very similarly as with financed ones. The same cancellation process applies:

• Review your lease agreement for any gap cancellation stipulations.

• Contact the gap insurer to submit cancellation forms and mileage verification.

• Return the gap certificate and complete any additional steps requested.

• Receive your prorated gap insurance refund check in the mail.

When evaluating if you should cancel gap on a leased car, compare the remaining lease balance against the vehicle’s value. Gap coverage isn’t necessary if you wouldn’t be “upside-down” in a total loss situation.

The Bottom Line on Canceling Gap Insurance

• Unlike required liability coverage, gap insurance is entirely optional and can be canceled anytime.

• Evaluate if gap still makes financial sense when you pay down your loan, near the end of your lease, or need to cut expenses.

• Follow your insurer’s cancellation process to terminate your policy and get a prorated refund if eligible.

• Consider alternatives like comprehensive coverage, an emergency fund, or lower-cost gap waiver for protection.

While gap insurance provides valuable peace of mind for many drivers, you ultimately have the flexibility to cancel if it’s no longer a smart use of your money. Monitoring its ongoing cost-effectiveness and avoiding overpaying makes gap insurance work best in your favor.

Can You Cancel Gap Insurance: Frequently Asked Questions

Can you cancel gap insurance at any time for any reason?

Yes, you can cancel gap insurance anytime since it is not legally required. Your reason does not matter – you can cancel due to it being too expensive, no longer needing coverage, or simply changing your mind.

How soon can you cancel gap insurance?

You are able to cancel gap insurance immediately after purchasing your policy if you quickly realize it is not right for you. There is no required minimum wait period to cancel.

Does canceling gap insurance hurt your credit?

No, canceling gap insurance does not hurt your credit score or appear on your credit report. Gap insurance is completely separate from your actual auto loan financing terms.

Can gap insurance be removed from a financed car?

Yes, you can remove gap insurance from your financed vehicle at any point by contacting your insurer and completing the cancellation process. Your loan terms are not affected.

Can you get a full refund if you cancel gap insurance right away?

Depending on your specific policy, you may be able to get a full refund if you cancel very quickly. However, most insurers prorate the refund based on the unused portion of coverage. Paying monthly minimizes refund eligibility.

How long does it take to cancel gap insurance?

The cancellation process typically takes 2-3 weeks from initial request to finalizing. You must complete all required paperwork and return your certificate. Once approved, your coverage will be terminated and any refund issued.