If someone steals the car you just financed or leased, gap insurance might help safeguard your finances. Also, it can assist if you have an accident during the first few years of ownership. Vehicle depreciation is quick and comprehensive, and collision insurance won't fully protect brand-new vehicles.

Gap insurance can close the chasm in many circumstances. Gap insurance may be purchased from some auto insurance providers. It is available through various sources, including automobile dealerships and financing firms, or as an endorsement or rider to your existing auto insurance policy.

While gap insurance is a wise investment for brand-new automobiles, it is unnecessary after the vehicle reaches a certain age. You are entitled to a prorated refund for any unused portion of your insurance if you cancel before the policy's expiration date.

What Exactly Is Gap Insurance?

Newer financed and leased automobiles are protected by Guaranteed Auto Protection, sometimes known as "gap insurance" or "loan/lease gap coverage." Gap insurance might assist you if your automobile gets stolen or written off by covering the difference between the amount you owe the lender and the amount the car is now worth.

Automobiles lose value rapidly. About 20% of a brand-new car's value is lost over the first year of ownership. Depreciation will reduce the automobile's worth by around 15% annually over the following four years1.

For instance, if you have a one-year auto loan for $15,000 and your vehicle is totaled, the insurance company will likely provide you with little more than $12,000. The 20% decline in value has already been taken into account. The car's projected after-a-year cash worth is $12,000, or $15,000 minus 20%.

Is Stop-Gap Coverage Necessary?

Car-leasing firms commonly require gap insurance. As a rule, you won't have to pay any more for it because it's already built into your lease. If it isn't included in your loan, you may usually get gap insurance from your lender or the dealership.

Gap insurance isn't often required by lenders when financing a car, but it is an option. Lenders and vehicle dealerships commonly sell gap insurance for a flat fee of $500 to $700. However, the dealer or lender may add the amount of the insurance to your loan if you decide to purchase it from them.

If it sells the coverage, a vehicle insurance company often sells it for a lot less than any other provider. Gap insurance is usually available as an add-on to an existing auto insurance policy.

What Doesn't Covered by Gap Insurance?

GAP insurance is not a panacea for paying off debt to a creditor or lessor. Some examples of these additional expenditures are:

• Anything that wasn't insured in the first place, such as preexisting damage, storage, towing, or wear and tear.
• Outstanding rent or loan balances from a previous agreement.
• Mileage fees in the event of overuse.
• Payment delays.
• Accessories like new audio or GPS installed after the vehicle was initially manufactured.

When Is The Right Time To Cancel Gap Insurance?

With gap insurance on your auto policy, you won't have to worry about being stuck with debt for more than the car is worth. In most cases, this occurs after two years of payments have been made.5 If you pay off your loan early, trade-in, or sell your car, you can also cancel your gap insurance policy.

Car leases often stipulate that insurance must be maintained for the duration of the lease. If your lender insists that you get gap insurance, you may be required to maintain that policy until the loan is paid in full under the terms of your financing agreement. For specifics, please see your loan or lease agreement.

The maximum amount of gap coverage may be specified in the lease, the insurance policy, or the insurance law of the state in which you reside.

Guide to Requesting a Refund from Your Gap Insurance

You can receive a refund if you cancel your gap insurance policy within its coverage period. In most cases, the insurance won't tell you that you're getting a refund and won't do it automatically. When your policy expires, the remaining balance will be refunded to you.

Gap insurance can be refunded at some institutions, such as Navy Federal Credit Union and Bellwether Community Credit Union if you do so within their guidelines. You should receive a full refund if you decide to cancel your insurance during the first 30 days. Specifics are subject to policy and local regulations.

How The Gap Insurance Claim Process Typically Works

After this procedure, your insurance company will cancel your coverage and return any unused premiums to you. Money is often sent through a check. Anywhere from a few days to six weeks is possible regarding the time it takes to receive a refund.