Is GAP Insurance Refundable? When the Dealer Says No

In several states, yes, if the loan ended early and no GAP benefit was paid; elsewhere it depends on your agreement. California, Texas, Wisconsin and Louisiana, for example, provide for a refund of the unused part when the loan ends early, and some states ban cancellation fees outright. South Carolina, on the other hand, lets a waiver be non-cancellable after a short free-look period.

So "non-refundable" is a claim to check, not the final word: read the cancellation section of your GAP agreement and your state's rule.

• Dealers sell GAP in two legal forms, and different laws apply:
• GAP waiver (also called a debt cancellation agreement): part of your financing contract, in which the creditor agrees to cancel the remaining balance after a total loss. Many states regulate these outside insurance law. Texas covers them in its Finance Code and says they are not insurance (Tex. Fin. Code § 354.002), and Delaware law says a GAP waiver is not insurance unless a law expressly says otherwise (18 Del. C. § 918).
• GAP insurance: a separate insurance policy, governed by the state's insurance law and overseen by the insurance department.

Your paperwork says which you have: look at the title of the GAP addendum and whether an insurance company is named.

• A refund is most likely owed when:
• you paid off the loan early, refinanced, or sold or traded in the car, and
• no GAP benefit was paid.

• A refund may not be owed when:
• GAP paid a benefit after a total loss or theft: California and Wisconsin law say no refund is due when the buyer receives the benefit, and Connecticut's says none is due once any benefit is paid;
• your state allows non-cancellable waivers after the free-look period and yours is one, as South Carolina allows;
• the loan ran its full term, so no coverage is left unused.

Cancelling within the free-look period with no claim returns the whole price in Texas, California, Wisconsin, Alabama and South Carolina (30 days in each) and in Connecticut (60 days).

• Texas: the agreement must state how refunds are calculated (Tex. Fin. Code § 354.004(10)). When the loan ends early, the unearned amount must be refunded or credited within 60 days (§ 354.007).
• California: after the first 30 days the refund is pro rata, no cancellation fee may be charged, and the holder must pay it or instruct the administrator in writing within 60 business days (Cal. Civ. Code § 2982.12).
• Wisconsin: no cancellation fee, and after 30 days the refund must be at least what the Rule of 78 gives (Wis. Stat. § 218.0148).
• Louisiana: after the free-look period, cancelling or ending the loan early entitles you to the unearned part, figured no worse than the Rule of 78s, with no cancellation fee (La. R.S. 6:969.53).
• South Carolina: no cancellation fee, but a waiver may be non-cancellable after the free-look period. If yours is cancellable, you must ask in writing within 90 days of the loan ending (S.C. Code § 37-30-150).

Your state's page has its rule: GAP refund laws by state.

1. Ask for the reason in writing, including the clause of your GAP agreement it relies on.
2. Read the cancellation section of the GAP agreement yourself: it states whether and how a refund is calculated.
3. Write to the company that backs the GAP (named in the agreement), with your proof that the loan ended early.
4. Complain to the regulator if the refusal contradicts the agreement or your state's law. Your state's page lists the contacts: GAP refund laws by state.

GAP Refund reads your contract or payoff letter for free, finds the GAP charge and estimates the refund under your state's rule. If you want, it drafts a refund request that you review, sign and send yourself. It is not a law firm, no attorney reviews the letter, and it does not contact the dealer or the administrator for you.