How To Cancel GAP Insurance

If you lease or finance a car, you’ll probably have to carry GAP insurance. GAP, or Guaranteed Asset Protection, pays the difference between what your vehicle is worth and what you owe if it’s totaled or stolen.

However, with a financed vehicle, at some point, you won’t need GAP coverage any longer. So knowing when and how to cancel GAP insurance saves you money.

Keep in mind that most lenders require full-coverage car insurance in addition to GAP coverage. Adding more coverage better protects their investment.

Keep reading to learn how to cancel GAP insurance and when you don’t need the extra coverage.

What is GAP car insurance?

Buying or leasing a new car is exciting. However, a lot of extra costs come along with that new car. Unfortunately, GAP insurance is something most new car buyers don’t consider when adding up costs.

How does GAP car insurance work?

Cars depreciate about 20% in their first year. As a result, you typically owe more than the car is worth as soon as you drive it off the lot. GAP insurance covers that difference for a total loss.

For example, let’s say you bought a car for $50,000, and it’s now worth $40,000. GAP coverage pays that $10,000 difference if the vehicle is stolen or totaled.

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The dealer will offer car insurance, including GAP coverage, when you buy or lease a car. However, you don’t have to get car insurance through your dealer. It’s much more expensive than if you look for coverage on your own.

How long does GAP insurance last?

GAP insurance isn’t costly, and you don’t have to carry it forever. In addition, because your state does not require it, you can cancel it as soon as you owe less than your car is worth.

Additionally, you won’t be required to carry GAP insurance if you paid cash for your vehicle or put down a substantial down payment.

Keep in mind that GAP insurance only pays for a complete loss of your vehicle. GAP insurance does not cover repairs, parts, missed payments, and wear and tear.

How do you cancel GAP insurance?

Canceling GAP insurance is pretty easy. Simply contact your car insurance company and remove the coverage. You may even be able to handle it yourself online or through the company’s app.

However, if you have insurance through your dealer or lender, you will have to call them to find out how to cancel GAP insurance.

You may have to submit a cancellation form, mileage documentation, and other forms. Your car insurance company or dealer can provide you with cancellation requirements.

If you’ve paid in advance for GAP coverage, you should get a prorated refund. However, if your insurance has paid a claim for a stolen or totaled vehicle, you won’t receive a refund for the GAP coverage.

Remember, if you have a lease or contract through a lender, it will probably determine exactly when you can cancel GAP coverage. Removing mandatory coverage costs you time and money.

For example, your lender can purchase car insurance for you if you don’t carry the necessary coverages. According to the Consumer Financial Protection Bureau, the lender can require force-placed insurance, which is much more expensive than the coverage you can find yourself.

Do you have to have full coverage with GAP insurance?

GAP insurance through a dealer costs around $500 a year. However, GAP coverage through a car insurance company costs a fraction of that.

Your lender and the car insurance company will probably require full coverage car insurance in addition to GAP coverage. Full coverage combines liability, collision, and comprehensive coverages. So, not only are property damages and bodily injuries to others covered, but your vehicle is covered as well.

While full coverage offers more protection, rates are also higher. This table shows average annual car insurance rates based on coverage types from top companies.

Average Annual Car Insurance Rates Based on Coverage Type

Rates only increase around $30 a month to add collision and comprehensive coverages. In addition, GAP coverage costs about 5% of collision and comprehensive rates. So while GAP coverage doesn’t raise car insurance rates very much, full coverage does.

How can you save on full-coverage car insurance?

Because full coverage offers more protection, rates also increase. The good news is that there are ways to lower those increased rates.

First, take advantage of car insurance discounts. Insurance companies offer a variety of discounts based on the driver, policy, and vehicle. You can bundle savings such as multi-car and safe-driver discounts. You can even get discounts based on your car’s safety features.

This table shows car insurance discounts from top companies. The savings amount is listed if it is available.

Car Insurance Discounts

Next, raise your deductibles. Your deductible is how much you must pay before your car insurance kicks in. Although raised deductibles increase your out-of-pocket costs, they also keep your overall rates low.

Finally, shop around for coverage. Every insurance company weighs your factors differently. Compare multiple companies to find full coverage and GAP insurance with the lowest rates available to you.

Case Study 1: John’s Car Loan Paid Off Early

John purchased a car and financed it with a five-year loan. At the time of purchase, he also obtained GAP insurance to protect himself in case of a total loss. However, John diligently made extra payments on his car loan and managed to pay it off in just three years. Since his loan was paid off early, John realized that he no longer needed GAP insurance.

He contacted his insurance provider and informed them about the early loan payoff. The insurance provider guided him through the cancellation process and refunded the remaining premium for the unused portion of his GAP insurance policy.

Case Study 2: Emily’s Car Depreciated Rapidly

Emily leased a brand new car and obtained GAP insurance to cover the gap between the car’s value and her lease obligations. However, within the first year of the lease, the car’s value depreciated significantly due to an oversaturated market for that particular model. Emily realized that the gap between the car’s value and her lease obligations had diminished to a negligible amount.

She decided to cancel her GAP insurance to save on premiums. Emily contacted her insurance provider, provided documentation of the car’s current value, and requested cancellation of the GAP insurance policy. The insurance provider processed the cancellation and adjusted her premiums accordingly.

Case Study 3: Sarah Sells Her Financed Car

Sarah financed a car and purchased GAP insurance to protect herself in case of a total loss. However, after a couple of years, Sarah decided to sell her car and pay off the remaining loan balance. As she no longer owned the car and had no outstanding loan, the need for GAP insurance was no longer relevant. Sarah contacted her insurance provider and informed them about the car sale and loan payoff.

The insurance provider assisted her with canceling the GAP insurance policy and refunded the unused portion of the premium. Sarah was able to save money by canceling the coverage she no longer needed.

Case Study 4: Michael Switches to a Different Insurance Provider

Michael had a financed car with GAP insurance provided by his auto lender. However, he found a better deal on his car insurance with a different provider that offered lower premiums for the same coverage. Michael decided to switch his car insurance to the new provider but wanted to cancel his GAP insurance as well.

He contacted his auto lender to inquire about canceling the GAP insurance policy and was informed that he needed to contact his insurance provider directly. Michael reached out to his insurance provider, informed them about the policy cancellation, and requested the termination of his GAP insurance.

The insurance provider processed the cancellation, and Michael was able to save money by switching to a more affordable car insurance policy without GAP coverage.

How To Cancel GAP Insurance: The Bottom Line

GAP insurance is necessary if you owe more than your vehicle is worth. Although GAP coverage is not required by law, most lenders require it in addition to full coverage car insurance to protect their investment.

While canceling GAP insurance is relatively simple, your lender may require you to keep the coverage. If you cancel anyway, your dealer or lender can purchase much more expensive coverage on your behalf.

Add discounts and raise deductibles to save money on car insurance with GAP coverage. In addition, find lower rates by shopping around for coverage.

Now that you know how to cancel GAP insurance check with your lender before you drop the coverage.