Can I get GAP insurance refund when my car is paid off?
To fully understand this question, you will want to know what GAP insurance is and whether or not you should get it. If you are already familiar, or already have GAP insurance, the first two sections of this article might give you a little bit more information, and the last sections will answer the question “Can I get a GAP insurance refund when my car is paid off. This is fantastic information to know before purchasing this type of insurance policy. Keep in mind that in some situations, GAP insurance is not optional. If you are taking a loan out to buy a vehicle, your lender may require that you have GAP insurance in the terms of the policy.
What Is GAP?
The best place to start when talking about GAP insurance is to understand what it is. This type of insurance coverage covers the difference between what you owe on a vehicle and what your vehicle is worth. If your car is damaged to the point that it would cost more to repair it than the car itself is worth, or the car is stolen, GAP insurance comes into play. While this is a type of insurance policy that is not always used by the people purchasing it, it provides extremely important protection to people’s finances and heavily impacts many people’s lives.
As soon as you purchase a vehicle, its value goes down. If you buy a car for $25,000, putting $1,000 down and making payments of $400 per month, you will not have paid off a large percent of the loan after the first six months of payments. Your car could be worth less than the amount you owe on it at this point. Car insurance pays out what your vehicle is worth, meaning if your $25,000 vehicle is only worth $19,000 at that point, that is what your standard car insurance policy will pay out. By adding on GAP insurance coverage, if you still owe $21,000 on that vehicle, the additional $2,000 will also be covered.
This also means that if you do not have lease GAP insurance, you’ll end up paying this $2,000 difference out-of-pocket. Of course, each vehicle and each auto insurance plan are different, so the amount of protection you get can vary from one vehicle to the next. Since cars depreciate in value, however, there are many situations where lease GAP insurance is a massive benefit for people who are caught in unfortunate circumstances. Keep in mind that if your deductible applies to a situation you are in, the cost of the deductible is still your responsibility to pay. GAP insurance coverage does not pay for your deductibles.
Should I Get GAP?
Getting GAP insurance coverage can be an incredibly smart plan, and even if your lender does not require it, a can end up saving you from paying a lot of money out-of-pocket if your vehicle is totaled or stolen. It can also be a huge value if you are leasing your vehicle, and many leasers do require lease GAP insurance coverage. When you are leasing a car, you are still responsible for the cost of the car if it is totaled or stolen. Lease payments are sometimes lower than the payments people would be making if they were purchasing the vehicle themselves, and because of this, the difference between how much you owe on a vehicle and how much the car is worth can be larger. Due to this, it can be much more critical to get lease GAP insurance on a leased car. This is why many lease contracts include a requirement that a GAP insurance plan is purchased.
There are many situations in which GAP insurance policies make sense if you are financing a vehicle as well. There are also situations where it does not make sense at all. If you expect to be in a position where you owe more for a vehicle than it is worth, GAP insurance can make sense. This can happen when a low down payment is made on a vehicle, as an example. Because you have made a lower initial payment for the vehicle, the likelihood that it depreciates below what you owe on it early on is higher. Another situation where a lease GAP insurance policy can make sense is if you are purchasing a vehicle that depreciates rapidly. Some cars depreciate more quickly than others, which is something car buyers should look into before making a purchase.
Another situation where people who are financing vehicles may want to purchase a GAP insurance plan is if they are paying a high-interest rate or if they have rolled over other payments into the loan. This can include money that you still owe on a trade-in, as an example. For people who are not in these situations, including people who do not owe more money on their vehicle than it is worth, lease GAP insurance is not necessary. Most drivers fit into this category, but it is still critical to take into consideration your situation and double check.
Can I Get A Refund If I Pay My Loan Off?
Insurance is important in many situations because a vehicles value begins to depreciate as soon as the vehicle is purchased. Your GAP insurance policy covers the difference between your vehicle’s value after depreciation is considered and what you owe on the vehicle. A car loses an estimated 10% of its value shortly after the contracts for the vehicle are signed.
Many professionals say that most cars will only be worth 50% of their purchase value after four years. Lease GAP insurance can be a smart investment in the right situations, but you should also know that it is possible to get a partial refund on your GAP coverage if you pay your loan off early. Remember that paying a large deposit on your vehicle may prevent you from needing to purchase lease GAP coverage.
You are entitled to a partial refund for the GAP coverage that you do not use if you pay your vehicle off early. If financing your vehicle, the premiums for your GAP insurance coverage are determined based on both the purchase price of your car and the term of the loan. If your loan term sees a reduction, because you have paid it off early, you do not end up receiving all of the coverage that you pay for in your insurance coverage. For this reason, the insurance company must refund you the unused premiums that you have paid on your policy. You will need to show your car insurance provider a payoff notice in order to receive this refund.
This information must be presented to the company you have purchased your GAP insurance coverage from. While dealerships do offer GAP insurance coverage, the best way to get the best rates and terms for your insurance policy is to shop around. There are many standard auto insurance companies that offer their own coverage on newer vehicles. You may be able to add GAP insurance on to your current car insurance policy if the auto insurance provider offers this type of coverage. Make sure to use the tools here to compare rates on car insurance; the tools that are here are excellent for comparing plans.
Cancel Your GAP Insurance Policy
Paying off your vehicle is a huge relief, and comes with a great sense of flexibility and freedom. No longer being obligated to pay that monthly car payment is an incredible feeling. You might be entitled to a partial refund of your GAP insurance premium if you pay your vehicle off early, but there are other situations in which a refund might be coming your way. If you no longer owe more money on your vehicle than it is worth, you can contact your insurance provider to request necessary forms and inquire about canceling your Insurance plan. Depending on your obligations, you might not be able to cancel your policy at a specific point in time. You can obtain the necessary forms to cancel this insurance coverage, but you may need a copy of your auto loan payoff in order to do so. Taking the time to contact your car insurance service provider is a fantastic way to get specific questions answered for your individual policy.
Consideration For Your GAP Insurance Policy
The company providing your GAP insurance is not always required to advertise to you, or even to notify you if you are due a refund on your insurance policy. While your loan payoff letter may let you know that you are entitled to a refund, checks are not issued automatically, and you will likely need to contact your vehicle insurance company to cancel the policy and request/collect any money that is owed to you. This process can take a month or two for the paperwork to go through and a refund check to be issued. Being aware that you are entitled to a refund is the first step of the process, but make sure that you remember to follow through after your loan is paid off, particularly if you have paid your loan off early.