When you sell your car, your Guaranteed Asset Protection (GAP) insurance policy becomes void. The coverage is specifically tied to that vehicle and its associated loan or lease. You cannot transfer a GAP policy to a new car or to the new owner. However, you are likely eligible for a refund for the unused portion of the premium if you paid for the policy upfront in a single lump sum.
GAP insurance covers the "gap" between what you owe on your car loan and the car's actual cash value (ACV) if it's totaled or stolen. Selling the car voluntarily terminates the need for this specific financial protection. The process for obtaining a refund depends entirely on how you paid for the policy.
- Single Premium (Paid Upfront): If you paid the entire GAP insurance cost at once, you are entitled to a pro-rated refund for the remaining term. The refund amount is calculated from the date of sale or the date the loan is paid off. You must contact your GAP insurance provider or lender to request a cancellation. Expect to provide proof of sale, such as the bill of sale, and confirmation that the loan has been satisfied.
- Financed Premium (Rolled into Loan): If the GAP insurance cost was financed and added to your auto loan, you typically do not receive a cash refund. Instead, canceling the policy reduces the principal balance of your loan. This means your loan will be paid off slightly faster or the final payoff amount will be lower.
The table below illustrates potential refund scenarios based on a hypothetical $700 single-premium GAP policy with a 5-year term.
| Months After Purchase When Car is Sold | Remaining Term (Months) | Approximate Pro-Rated Refund |
|---|
| 6 months | 54 months | $630 |
| 12 months (1 year) | 48 months | $560 |
| 24 months (2 years) | 36 months | $420 |
| 36 months (3 years) | 24 months | $280 |
The most critical step is to proactively contact your insurer or lender. Don't assume the cancellation happens automatically. Have your loan account number and vehicle sale documents ready to expedite the process.
