Insurance policies can be very intimidating to car owners, especially the first-time buyers, who just want to get this over and enjoy their four-wheelers with friends and families. The problem here is that this laid-back attitude can actually cost owners a lot of money without them even noticing.
For instance, the policies that were signed when the vehicle was bought may not apply to the accident it occurred or the drivers may not even be aware they have a right to apply for a refund.
That is why today we are going to take a look at the Guaranteed Asset Protection (GAP) – one of the most misinterpreted policies in the automotive world – see what it’s all about, when it applies, and when you can ask for an insurance refund.
What is GAP Insurance?
Guaranteed Asset Protection insurance is a policy very specific for the North American financial system. It is a type of auto insurance that protects the car owner from the losses that occur if the amount of compensation for the total loss they get from the regular insurance does not fully cover the amount the insured driver owes for the vehicle's lease agreement or other forms of financing.
In other words, the situations where GAP insurance can be used are the ones when the balance owed on a car loan is greater than the book value of the vehicle.
For instance, you may own a car whose market value sits at $20,000. But, after the interests and other costs are counted in, you owe the lenders $25,000 worth of car payments. If the car gets totaled, your insurance policy will cover only reimburse you with $20,000 for the value of the care. And even though you no longer own the vehicle, you still owe $5,000 to the financing company.
This is where GAP kicks in to cover the subsequent costs.
Other situations when you can request a GAP refund
This was only one textbook example where you can ask for a GAP refund. Of course, your GAP insurance company will be able to provide you with more info about this policy and scenarios when it can be activated, but let us quickly go through some of the most common situations:
- Trading in an upside-down car: In this case, the dealership adds what you still owe to the loan balance of the new car unless you pay this difference upfront. All these costs are covered by a GAP policy.
- Cars with bad resale value: Some vehicles drop value faster than others. It’s possible for your car to drop in value by 25% or more than when you applied for a loan.
- Extensive loan terms: Loan agreements that spread out over 60 months or more inevitably stack up a lot of added debt on the shoulders of the owner. This is yet another situation where GAP insurance seems like a very feasible option.
How to request a GAP insurance refund
Keeping all these things in mind can be a truly useful asset if your vehicle is prone to dropping value or you are faced with extended loan terms. But, what happens if you manage to pay off the loan ahead of schedule and you no longer need this policy?
The good news is that it is possible to get a prorated refund on your GAP coverage.
Namely, the GAP insurance premiums are determined based on the purchase price of your vehicle as well as the extent of the loan term. If you manage to pay off the loan sooner, you effectively don't get the whole GAP coverage you have initially purchased.
You are also able to ask your insurance company for a refund in the case you sell the vehicle you are still repaying. In this case, you will get a partial return where the final amount will depend on the following factors:
- The pending loan amount
- The time window for loan repayment
- Odometer vehicle readings
Last but not least, some insurance companies offer an option to cancel the insurance contract within 30 days after purchasing the policy, in which case you should get a full refund for the amount you have paid for the GAP insurance.
The process of application is very simple, and you only need to get in touch with your insurance company. But, if you are away or busy, these services can be provided by a third-party vendor.
As we can see, GAP insurance is a very interesting policy that allows the car owners to cover the loan debts in the case the car they have purchased is totaled in an accident. It is important to notice that, in a large majority of cases (except for fluctuating market value), this insurance model is only useful if the owner still repays the loan. If you manage to do this ahead of time, be sure to apply for a GAP insurance refund and a portion of the policy price back.
Written by Carolin Petterson
About the Author
Carolin Petterson is a Business Lady and contributor for number of high-class websites. She loves to share her experiences and talk about practical solutions, but her specialties are sustainability, sustainable business and green living.
You may also like