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How to Cancel Gap Insurance: Everything You Need to Know

Can You Cancel Gap Insurance? 

Yes, you can cancel gap insurance on your vehicle at any time as long as your leasing company or auto lender allows it. If you paid for your policy upfront in one lump sum, you should qualify for a prorated refund equivalent to the unused time on your contract. You may no longer need gap insurance if one of the following situations apply to you:

  • You owe less on your auto loan than your car’s worth
  • You have sold the vehicle
  • You’ve fully paid off your loan

If none of these situations apply, you should maintain coverage to guarantee additional financial support in case your car gets stolen or totaled.

Why Do People Get Gap Insurance? 

Insurers traditionally only pay actual cash value for totaled or stolen cars, which factors in depreciation — meaning the value your vehicle has lost over time because of miles, years, etc. Gap insurance covers the “gap” between your loan balance and your vehicle’s depreciated value, benefiting people who are in the following situations:

  • Lease their car, as leasing companies almost always require gap insurance
  • Bought a car for less than a 20% down payment
  • Financed their vehicle for 60 months or longer
  • Want to roll over negative equity from an old car onto their current loan

With rising car prices, gap insurance has only become more prevalent. However, people often pay too much for coverage they no longer need. If this applies to you, cancel your policy to maximize your prorated refund.

How Does Cancelling Gap Insurance Work? 

 If your dealership or leasing company allows it, you can cancel your gap insurance anytime for a partial refund. While gap insurance serves an important function, it often outlasts its worth. Your gap insurance policy may no longer serve you if you have sufficiently paid down your auto loan, want to sell your car, or plan to switch providers.

What Is a Gap Insurance Refund? 

When you buy gap insurance, you can purchase your policy upfront in one lump sum or pay in monthly installments. Cancelled policies rarely qualify for a full refund. Instead, insurers usually credit the policy or refund the car you used to make payment for the unused premiums remaining on your contract. 

Typically, around two years into a loan term, reliable borrowers will have paid their loan below their car’s depreciated value, making gap insurance irrelevant. Furthermore, you cannot transfer your old policy if you recently sold or paid off your car or want to switch to a cheaper insurer.

When You Can Get a GAP Insurance Refund 

Unlike other forms of auto insurance, the law does not require drivers to carry gap insurance. If maintaining coverage stops making sense financially, you can exercise your gap insurance cancellation rights anytime. You will qualify for a prorated refund if:

  • You paid for the total cost of gap insurance upfront and have yet to reach the end of your policy term. If so, you will receive a prorated refund for every unused monthly premium.
  • Your leasing company or lender allows you to drop coverage. Typically, leasing companies and dealerships require you to maintain continuous gap insurance, whereas auto lenders allow more flexibility. However, every company invokes its own rules, so review your contract to understand your eligibility.

When You Cannot Get a GAP Insurance Refund 

In rare instances, you may not qualify for a GAP insurance refund. These occur when:

  • Your leasing company or lender requires gap insurance. Even though you can legally drive without gap insurance, some companies enforce mandatory coverage.
  • You cancel your policy at the end of your term. By paying for coverage upfront and maintaining it for your entire contract length, you leave no money for a refund.
  • Your insurer has already met its obligation for coverage. In other words, if your car was totaled or stolen and your gap insurance paid its share of the difference, you waive your right to a refund should you cancel the policy a few months later.

How Do I Determine My Gap Insurance Refund? 

If you paid for coverage upfront, divide the entire cost of your gap policy by the total months on your contract to calculate your monthly premium. For example, a $500 policy on a 72-month loan equates to a $7 monthly premium. If you cancel two years into receiving coverage, $7 a month for the remaining four years approximates a $336 refund.  

However, every insurance company will approach this differently. Along with the formula used above, your insurer will factor the following details into your gap insurance refund:

  • The value of your vehicle
  • The amount left on your loan
  • The vehicle’s current mileage
  • The loan repayment term

How Long Does It Take to Process a Gap Insurance Refund? 

Once you cancel your policy and request a refund, your insurer will take between four to six weeks to mail you a prorated check. While this waiting period can fluctuate depending on your insurer or complications with your policy, promptly filing your paperwork and staying in regular contact with your gap insurance provider can help expedite the process.

Remember that you must initiate the cancellation process yourself to guarantee a refund. Insurers rarely notify policyholders of coverage redundancies and will only repay you for unused premiums upon request. In rare cases, dealerships may reward you with a total refund covering the entire length of your policy. Sometimes, reimbursement may arrive as an account credit if insured through a separate insurance company.

How Much Does Gap Insurance Cost? 

Leasing companies and lenders often write gap insurance into your contract for a flat rate averaging between $500 and $700. Though you can also secure coverage through a standalone policy, the cheapest rates often come when your current provider rolls gap insurance into an existing policy, typically at around 5% of your collision and comprehensive coverage.

Regardless, rates will ultimately vary based on your car’s value, condition, mileage, and where you purchased it. 

How Much Money Can You Save By Cancelling Gap Insurance? 

Typically, you only need gap insurance when you owe more on a car than its present value. Once you catch up on your loan or lease payments, immediately cancelling gap insurance can save you substantially. Suppose you purchased a gap policy on a 60-month loan for $700 upfront through your lender. Cancelling after two years would net you a $420 refund.

How To Cancel Gap Insurance 

If your gap insurance no longer benefits you, follow the steps below to begin the cancellation process.

1. Review Your Policy 

First, check your policy for refund eligibility. Most dealerships require you to maintain gap coverage throughout your lease and will deny cancellation. Similarly, some lenders simply roll the cost of gap insurance into your financing plan. You will only qualify for a refund if your lender allows it and you purchased gap coverage in one lump sum instead of opting for monthly payments.

2. Contact Your Insurer 

Contact your insurer online or over the phone to tell them you have decided to cancel your gap insurance and explicitly request a refund. Depending on where you purchased your vehicle, you must also contact your lender or leasing company to order the necessary cancellation forms.

3. Provide Information and Documentation 

Next, you must provide documentation proving your car’s mileage, allowing insurers to estimate its current value. You can verify the mileage of your vehicle by securing an odometer disclosure statement from your dealership. If you have sold your car, you may also need to provide proof of sale. If you paid off your loan, procure a copy of the payoff letter.

4. Request a Refund 

Wait to submit your refund request until you have legally sold or paid off your vehicle. Once complete, formally submit a refund application through the proper bureaucratic methods dictated by your lender or dealership. Remember that your insurer will not notify you of a potential refund and that you must officially request one before they reimburse you.

5. Follow Up With Your Insurer 

Follow up with your insurer as needed to expedite the refund process. Even adequately filed refund requests can get lost in the shuffle. If you have yet to receive a check in the mail four to six weeks after filing for cancellation, contact your gap insurance provider immediately.

Who Should Cancel Their Gap Insurance?

  • Prorated refund:
  • Cut down on premiums
  • Removes unnecessary coverage
  • Allows you to find a better policy
  • Removes an essential layer of protection
  • Could compromise your lease
  • Potential penalties and fees

Gap insurance cancellation makes the most sense if any of the following situations apply to you:

  • You initially overpaid for coverage. Sometimes, individuals bend to pressure from salespeople to purchase insurance riders on the spot for less than favorable rates. If you find a better deal through an outside insurer, switch policies for a prorated refund.
  • You have paid your loan below your car’s current value. Gap insurance only covers the difference between your vehicle’s market worth and loan balance, neutralizing its benefits once you catch up on payments.
  • You sold your car or paid off your loan. With the loan or vehicle removed from the equation, you leave no “gap” to cover against, making gap insurance an irrelevant expense.


Promptly cancelling your gap insurance provides many advantages:

  • Prorated refund: You should a refund to reimburse you for unused time on your policy.
  • Cut down on premiums: Removing gap insurance lowers your overall car insurance spending.
  • Removes unnecessary coverage: Gap insurance no longer offers viable protection once you pay your loan beyond your car’s depreciated value.
  • Allows you to find a better policy: Gap insurance cannot get transferred to a new vehicle. If you have sold your vehicle or just want to find a lower rate for the same car, canceling your old coverage makes room for a new insurance policy.


However, consider these potential downsides before canceling your gap insurance coverage:

  • Removes an essential layer of protection: If your loan still holds a higher value than your vehicle, gap insurance would reimburse the difference following a total loss. Without coverage, you would have to absorb this out of pocket, often costing thousands of dollars.
  • Could compromise your lease: Many dealerships and leasing companies require continuous gap insurance coverage. Cancellation could result in a contract violation.
  • Potential penalties and fees: Some insurers charge cancellation fees and other penalties for early coverage removal, occasionally as high as 50% of your premium.  Depending on your situation, the fees you assess could negate anything you’d get back in a partial refund.

Alternatives to Gap Insurance 

If you choose to cancel your gap insurance, securing any of the following alternatives could offer commensurate protection:

  • Collision and Comprehensive Coverage: Collision insurance reimburses you for damages caused by yourself,whereas comprehensive covers all non-collision-related losses. You can often forego gap insurance by combining sufficient amounts of both coverages.
  • Equity Protection: By working with a lender participating in an equity protection program, you can receive funding for a similarly valued vehicle following a total loss.
  • Extended Warranties: These help cover the cost of repairs after standard auto warranties expire, often paying enough to reimburse losses typically covered by gap insurance.
  • Personal Loan Insurance: Supplementary coverage that protects you from defaulting on a loan following an emergency or unexpected loss of income.
  • Self-Insurance: Instead of paying an insurance company to protect you from potential losses, you can strategically set aside a portion of your income for similar purposes.

Putting It All Together 

Gap insurance only reimburses you for the difference between the remaining balance on your auto loan and your vehicle’s current market value. If you have recently sold or traded your car or sufficiently paid down your loan, this coverage no longer provides viable benefits. Luckily, most insurers will let you cancel gap insurance anytime to secure a prorated refund for unused premiums on your contract.  

Contact your trusted insurance agent to discuss if now is a good time to cancel your policy. If so, formally request a refund through the appropriate channels.

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