Question: Can you cancel your gap insurance when you feel you no longer need it?
Answer: Yes, usually you can cancel gap insurance if you determine that you no longer need it.
Gap insurance policies, terms and fees vary. To find out about how to cancel your existing gap insurance policy, you’ll need to read through the contract you have with your gap insurance provider. If you still have questions, contact the insurer directly.
If you just purchased the policy, depending upon your gap insurance company, it may be possible that if you cancel within a certain time period (typically 30 days) you can receive a full refund. A cancellation fee may apply. (See "What you need to know about gap insurance")
After that initial period, if you cancel the policy you normally will receive a refund prorated according to the length of time that you kept the policy in effect. You can’t get a full refund since you’ve “used” a portion of it already.
Also, any refund would be due you only if you had paid in full upfront for the gap insurance policy. If your gap insurance coverage were set up so that you paid a monthly amount for it (for instance, included in with your monthly car loan), then you should still be able to cancel the gap policy, but you shouldn’t expect a refund since the portion you paid each month would have been used in that month already.
As you know, gap insurance covers the difference between the actual cash value (ACV) of a vehicle (which is what an insurance company would pay out for a totaled vehicle) and what you actually owe on the lease or loan. So, I’d warn you that before you cancel out your gap insurance that you run the numbers.
If you’re still upside-down on your car’s loan (owe more than it’s worth), then gap insurance is likely still needed. If you now owe less than the car's ACV, you could cancel your gap insurance since it would not pay out if your car were totaled out by an insurance company after an accident.
If you no longer want your current gap insurance policy because you believe you paid too much for it, then shop around to see if a cheaper policy is possible. If it is, then see about canceling out your current one before buying the new one.
If you bought your gap insurance through a dealership or finance company, then it is quite possible that you could find a policy with a credit union or auto insurance company for much less. We recommend shopping around for gap insurance, just as you should for the car insurance policy for a new car.
Comparison shopping with several auto insurance companies (or gap insurers in your case) can save you hundreds of dollars, if not much more.