New cars lose up to 10% of their value within the first month of purchase – and 20% within the first year – which is why some people purchase gap insurance. 

Gap coverage – or gap insurance protection – covers the difference between the actual cash value (ACV) of your vehicle and what you still owe to the lender. So, if you are in a car accident and you owe more than the insurance company pays you, you have coverage for the difference. 

“For instance, if a vehicle depreciates as soon as you drive it off of the car lot, you may have financed the vehicle for $20,000 when the actual cash value of the vehicle is only $15,000,” says Lauren Mckenzie, insurance broker/agent with A Plus Insurance. 

In the case that the vehicle is stolen and your insurance company pays you the ACV of the vehicle, you will still owe the creditor a balance of $5,000, she says. Gap coverage can be added onto an auto policy for a small additional charge to cover the difference on a loan.

Key Highlights
  • Call the insurance company or dealership that provided you coverage to cancel your gap insurance.
  • Remember that a gap insurance cancellation refund could be small if you pay the premium monthly.
  • You should be refunded the difference you are owed, particularly if you paid a year’s premium.

How do I cancel my gap insurance?

To cancel your gap insurance and obtain a refund on the balance you are owed, you must have purchased insurance through an insurance company, a dealership or an agent.

Here are a few simple steps for how to cancel gap insurance:

  1. Contact the person or company through which you purchased your gap insurance.
  2. Provide them with your name, policy number and any other information that they ask you for.
  3. Explain why you want to cancel the insurance early and ask them what, if any follow-up paperwork is necessary to cancel your gap insurance as quickly as possible.
  4. Be clear that you want a refund. Ask how the company can credit that back to you and whether you have an option for a check, an automatic deposit or a credit on your account.

Canceling your gap insurance may be easier than you think. It often requires a phone call or two and a persistent follow-up call if you do not receive your gap insurance cancellation refund in the anticipated time. But how easy is it?

“It’s usually an endorsement that is added to an existing insurance policy,” Mckenzie says. “With that method, it’s a pretty easy thing to just add and take off at any time without canceling the entire insurance policy.” 

How to cancel gap insurance from a dealership

If you want to cancel gap insurance from a dealership, you may need to do more up-front legwork. Still, it will be similar to canceling through your agent or car insurance company. 

Here’s what to do:

  1. Contact the dealership and have them provide you with the contact information for the gap insurance provider.
  2. They may be able to provide you with that information quickly or they may need to call you back.
  3. When you have them on the phone, ask about the next step in the process and who the refund will come from.
  4. If they give you another number to call to cancel your gap insurance, write that number down and call as quickly as possible to start the cancellation process.

When to cancel gap insurance

Canceling gap insurance is a personal choice. You may be close to paying off your vehicle, and you feel that the risk of an accident is low or you may decide you want to pocket the money you are spending on gap insurance instead.

Generally speaking, you may find that there are three sound reasons for canceling your gap insurance early:

  • Paying off, selling or trading in your vehicle. Some people pay off their vehicle earlier than the loan expiration date. This eliminates the need for gap insurance since you no longer owe money to a creditor. This could be a good time to cancel your gap insurance. 

Similarly, if you sell the vehicle or trade it in and it is no longer in your possession, your need for gap insurance is eliminated. You can look into being refunded the difference for any premiums that you have paid ahead of time.

  • Switching your gap insurance provider. As with any insurance product, you may be eligible for a refund when you switch your insurance because you found a better price elsewhere. This could occur when shopping for a new auto insurance provider that gives you better overall rates and offers. This is another time when you may be eligible for a gap insurance cancellation refund.
  • The cash value of your vehicle is more significant than your loan amount. Congratulations, you’ve reached a happy place. Although you still owe money on your loan to a creditor, your vehicle’s actual cash value (ACV) is greater than the amount you owe. You no longer need to worry about covering the difference between the ACV and the loan amount, so the time may be right to cancel your gap insurance. (To learn more about your vehicle’s value, use a site like

There is a caveat: The only time you may be unable to cancel gap insurance is if your leasing company requires you to keep gap insurance during the lease period.

“Make sure to consider and weigh the pros and cons, no matter the reason for canceling your gap insurance,” Mckenzie says. “If your vehicle is not paid off, and the lending company requires gap insurance to be carried for the entirety of the loan, they may force gap insurance in place through their own lending company. Make sure you review the policy terms to understand cancellation terms, conditions and any potential fees for cancellation.”

Things to remember about gap insurance cancellation

Here are a few things to remember about gap insurance cancellation:

  • It’s your decision about when to cancel gap insurance. However, you may only want to purchase the coverage for the first two to three years following your new vehicle purchase. According to Jimmi Lewis, an insurance agent with myIQuotes, a division of Alta Vista Insurance, “those first years are typically when your auto loan is upside down, meaning you owe more than the car is worth.” 
  • If you pay your premiums monthly, your refund should be much smaller than if you pay semi-annually or annually. Paying more of your premium upfront will result in a larger refund of the unused portion of your gap insurance balance.
  • If you are making an actual gap insurance claim – because your vehicle has been totaled, for example – you will not be able to request a refund on the coverage you already paid for.

Ideally, this information helps you to have a greater understanding of the gap insurance cancellation process. But what about the steps for actually receiving that refund? How does that happen?

How to get a gap insurance refund

Be clear that you can only receive a refund for the amount of the premium that you’ve paid ahead of time. If you pay monthly, this amount will be considerably smaller than if you’ve paid a year in advance and have much of that year remaining.

Your agent or company may offer you the following options for receiving your refund:

  • A check sent to your house
  • A refund deposit into a bank account the payments come from
  • A credit to a future payment or your account balance

It can take time to receive a refund for your gap insurance, particularly if a check needs to be processed and mailed to you. If your refund takes a long time, however, you can follow up with your agent and ask why you have not yet received your refund. Be patient – and know that your persistence may pay off.

Resources & Methodology


  1. “Car Depreciation: How Much Value Does a Car Lose in its First Year?” Accessed September 2023.
  2. National Consumer Law Center. “Auto Add-Ons Add Up.” Accessed September 2023.
Laura Longero

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Laura Longero

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Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.

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