A happy couple signing paperwork on a clipboard held by a happy car salesperson.

Can I Cancel Gap Insurance from a Dealership?

Updated February 12, 2024 . AmFam Team

There are a lot of reasons why you need gap lease or loan insurance when you buy a new car. As soon as you drive that new vehicle off the lot, it’s going to depreciate in value. In the first year alone, your new car can lose as much as 20 to 30 percent of its overall value. Unfortunately, your car loan may not decrease at the same rate. Gap lease or loan coverage is usually required by your lender when you make the purchase to cover that difference. But here’s the good news: you don’t have to buy your gap coverage from the dealership.

Like anything else, it pays to shop around before you commit. And if you've already bought coverage from your dealer, you can request a gap insurance refund from that dealership. But be sure you have an active policy in place before you pull the plug on your dealer’s policy. Let’s walk through what you need to know about gap lease or loan coverage and how to make the most of it.

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Do I have to buy gap insurance from a dealer?

When you sit down with a salesperson to hammer out the details of your car purchase, you may find yourself fielding a lot of optional expenses. Dealerships will offer you everything from rustproof undercoating to extended warranties. If you find yourself wondering, “Should I buy gap insurance from the dealer?” you may be wise to think twice. You don’t have to buy gap insurance from your dealer, you typically have time to add gap coverage to the new vehicle immediately following the purchase. Be sure to check with your agent so that you’re aware of time limitations and requirements.

You have options before you buy gap lease or loan coverage:

Carefully Review the Dealer’s Gap Coverage Terms and Conditions

Don’t assume that the policy they’re offering you does as much to protect you as other policies. Review this policy carefully so you can discuss it with your agent.

Learn About Coverage Limits

Dig into the details on your gap lease or loan offer. Find out what percentage of the actual cash value (ACV) the policy pays out. Typically, gap lease or loan coverage will pay up to 25 percent of the ACV.

Ask the Dealer If You Can Remove Gap Insurance from a Car Loan

Occasionally, the cost of gap insurance will be folded into the cost of financing, and it can be hard to see if you don’t ask for a quote without it.

Get a Gap Lease or Loan Quote from American Family Insurance

With stiff competition to keep MSRP rates low, dealers are frequently turning to alternative ways to pad their profits. Let them know that you need a few moments to call your American Family agent and get a quote on a gap policy.

Man browsing a car dealership showroom

Can you remove gap insurance from a car loan?

If you’re just learning about your gap lease or loan options and you’ve already purchased a policy through your dealer, it’s not too late. You can remove a gap policy from your car loan, though you’ll need to be careful to be sure you’re protected during the transition.

Do you get money back when you cancel gap insurance? The answer to that may be music to your ears. You could qualify for a refund, depending on the terms of the contract. If you just bought your car a few months ago, odds are you’ll be getting a refund. Most dealerships require that the premium for the gap lease or loan protection is paid at closing. And that premium may extend for several years.

How long does it take to get a gap insurance refund?

Navigating a refund from your dealership for gap insurance can take some time. You’ll need to contact the insurance company that the dealership works with, and you’ll probably need to have a replacement gap lease or loan policy up and running before canceling. You may have to wait anywhere from a few days to several weeks to get your gap insurance refund. Here’s what it takes to cancel a dealership’s gap coverage.

Locate Your Vehicle Purchase Agreement from the Dealer

Be sure that you’ve got copies of the paperwork you signed when you bought your car. If you can’t find them, request duplicates from the dealership. They may be able to email you copies and that can save time.

Contact the Dealer’s Gap Lease or Loan Insurance Provider

Reach out to the group you’re currently insured under and ask them what steps are required to cancel your gap policy. They may require you to provide written notice of your intent to cancel, but you may be able to scan and email or fax your request.

Provide Your Current Contact Information

Be sure to provide your updated address to the dealership’s insurance company. Without it, the check may be sent to a previous residence.

Purchase Alternate Gap Lease or Loan Coverage Now

Contact your American Family agent and purchase coverage so it’s active prior to cancelling your current policy. Be sure to get details on when your new coverage is active before cancelling your old policy so your coverage will continue without interruption between providers.

Sign and Return All Required Paperwork Promptly

Get all documents signed and returned as they’re received to expedite the process.

Another key benefit to purchasing your gap lease or loan coverage from American Family is that you’ll be able to pay for the insurance in a way that’s convenient to you. You can directly transfer the check you get from the dealership’s insurance group to your current policy, or you can bank the money and make monthly payments instead.

While you’re considering your gap insurance needs, reach out to your American Family Insurance agent and get a quote. You’ll find more peace of mind with a policy that’s provided by a group you know and trust.

This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.

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