When you purchase a car from a dealership, there are many different types of auto insurance that you can purchase to help protect you and your vehicle. One of those types of insurance that is often misunderstood is gap insurance. In this blog article, we will cover what is gap insurance, how a gap insurance refund works, and when to cancel gap insurance if you have it. Keep reading to learn more!
What is Gap Insurance?
Before we go through how gap insurance refunds work, it’s important to fully understand what is gap insurance. Essentially, gap insurance pays the difference between the actual value of your car and the amount you still owe on your car loan or lease. If you are not aware already, a car’s value depreciates every year. For example, if you bought your car brand new and it was worth $30,000 and it was stolen a year later, it may now only be worth $25,000 but you took out a loan for $30,000. That means there is a $5,000 gap between the current value of your car and your loan. Gap insurance refunds covers this difference in case something bad happens to your car.
How Does a Gap Insurance Refund Work?
Now that you understand what gap insurance works, you may want to know more about how a gap insurance refund works. A gap insurance refund reimburses the policyholders for the balance of their premium if it is unused. For example, if you took out a substantial loan to buy a car and can pay off your car loan a few years later, earlier than your expected. If you paid your gap insurance cost annually instead of monthly, you could get a refund for the gap insurance coverage for the rest of your policy that you no longer need but have already paid for.
When to Cancel Gap Insurance
There are three situations when to cancel gap insurance and get a refund.
- You are selling or trading your car – If you want to trade in or sell your car which you bought gap insurance for, you can get a refund for coverage you didn’t use. However, be sure to wait to cancel your gap insurance coverage until after the car is legally traded or sold.
- You paid off your car loan – If you have paid off your car loan, one of the benefits of paying your car off early (besides no longer having a monthly bill) is that you can request a refund for the remaining gap insurance that you haven’t used yet. Your refund will only be partial as you’ve used a portion of your gap insurance policy while the loan was still active.
- You are switching to a new insurance company – If you’re unhappy with your insurance provider, you have the option of switching to a new provider. Before you do, make sure you have new car insurance in place before you cancel your original insurance policy, and you will become eligible for a refund for the canceled coverage that you didn’t use.
If you are interested in learning more about how gap insurance can benefit you, it’s best to speak to an experienced insurance service provider. At Dunham Insurance, no matter what type of insurance coverage you need, we take the extra time to ensure that you completely understand your coverage and that it fits your needs perfectly. Get in touch today to chat about how we can find insurance products that are tailor-made for your needs.