Simply put, it is insurance that fills in the gap between what you owe on your vehicle and what it is worth if your vehicle is deemed to be totaled in an accident or stolen. Not all companies offer the same gap insurance policies so it is very important that you know exactly what type of gap insurance you are buying.
No one is required to purchase gap insurance, although it is beneficial to have if you won’t be able to afford to pay the difference between what the vehicle is worth and what you still owe out of pocket. The bank will still want their money whether you have your vehicle or not, so purchasing gap insurance is a good idea.
Gap Insurance Policy
With any luck you will never need to use your gap insurance policy. This is great news because it means that you still have your vehicle. Although you agree to purchase gap insurance at the time of obtaining the vehicle loan all is not lost if you decide to trade the vehicle in before the loan is paid off.
Depending on the balance of your loan, trading off or selling the vehicle will entitle you to a gap insurance refund payment. The same holds true if you should pay off your vehicle loan earlier than expected. The gap insurance refund payment is determined by how early you pay off the loan.
- Chances are that you will have to seek out your gap insurance refund yourself, although some lenders will let you know you have this refund coming to you. You will need to gather a few items to obtain your gap insurance refund.
- These items are an odometer disclosure statement that is obtained the day you trade in your vehicle, the statement showing that the new lender has paid off your old lender, and a copy of the paperwork proving you purchased the gap insurance.
Once these items are in hand you need to go back the dealership where you purchased the gap insurance policy to let them know you want to cancel the gap insurance. They will take care of the paperwork with the gap insurance company who will then mail you the check for your gap insurance refund.