Can you cancel gap insurance?

9 minute read Published on Jun 10, 2025 by BrokerLink Communications

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Gap insurance is a type of car insurance that steps in to protect your wallet if you're financing or leasing a new vehicle. It’s there to cover the “gap” between what you still owe on your loan or lease and what your car is worth (its depreciated value) if it’s totalled or stolen. Some lenders or leasing companies require it, while others leave it up to you. But what if you already have gap insurance and decide you don’t need it anymore? Can you cancel it? The answer depends on your lease or loan agreement.

Cancelling gap insurance

It makes sense to add gap insurance to a brand-new financed or leased car. The moment you drive your new car off the lot, it starts losing value. In fact, during the first year, your car can depreciate by as much as 20% to 30%. If your car were totalled in an accident or stolen, your insurance would only cover its actual cash value—what it’s worth at that moment—not what you still owe. That leaves you responsible for paying the difference out of pocket. But what if you want to cancel your gap insurance coverage? Generally, people cancel gap insurance for a few common reasons:

They no longer want or need the coverage
They’re switching to a different gap insurance provider
They’ve paid off their car loan—or at least enough of it that the remaining balance is less than the car's actual cash value (ACV)
They sold or traded in their car

So, can you cancel gap coverage? Well, if you're leasing your vehicle, your lease agreement might require you to keep gap insurance or a similar waiver of depreciation until the lease term ends. In this case, you’d be contractually obligated to maintain the coverage, no matter how much you've paid off or how much your car has depreciated. Similarly, if your lender requires gap insurance, your financing contract likely states you need to keep it until the loan is fully paid off.

To figure out if cancelling is an option for you, take a close look at your lease or loan agreement. If you’re unsure, an insurance professional—like those at BrokerLink—can help you understand the details.

Finally, if you discover that it's not a mandatory requirement of your loan or lease agreement and you do decide to cancel gap insurance, keep in mind that some policies charge a termination fee. These fees can vary, which is another good reason to consult with an insurance broker before making any decisions.

Where to buy gap insurance

You can usually buy gap insurance from three main places:

Car insurance companies
Dealerships
Lenders

When you purchase a policy, you’ll typically have two payment options: pay the premium upfront in one lump sum or spread it out with monthly payments. Both options have their pros and cons—monthly payments, for example, might come with extra transaction fees, so it’s a good idea to ask about those ahead of time.

If you pay upfront and decide to cancel your coverage later, you might be eligible for a refund on the unused portion of your policy. On the other hand, if you’re paying monthly, your refund will likely be smaller since you’ve only paid for coverage month-to-month.

Gap insurance refund

You might be eligible for a gap insurance refund if you decide to cancel your coverage, but it depends on your insurance provider's rules.

If your gap insurance hasn’t expired and your lease agreement or loan contract doesn’t require you to keep it, you can cancel your coverage and ask for a refund. The refund would typically cover the unused portion of your policy. For example, if you cancel with four months left on a year-long policy, your provider might refund the value of those remaining months, minus any applicable cancellation fees.

However, this is only if you've paid your insurance policy in full. If you're making monthly payments, you likely won't receive a refund since you haven't paid for the remaining months yet. To start the process, just reach out to your insurance company, lender, or dealership. Each will be discussed in detail below:

Gap insurance refund from a car dealership

If you bought gap insurance directly from the car dealership that you leased your car from, you may still be able to request a refund just as if you had purchased the coverage from a car insurance provider. However, you may only be eligible if your current auto insurance policy is still valid, and you have not already received a gap claim payout.

Gap insurance refund following a total loss

If your car is stolen or totalled, and your gap insurance covers the difference between what you owe on your loan and the car’s actual cash value, you won’t qualify for a refund on the unused portion of your policy. However, if you decide to cancel the policy entirely after the total loss, you might still be eligible to get some of your money back.

Gap insurance refund refusal

As a customer, there are many circumstances in which you are within your rights to cancel your gap insurance policy and request a refund for the unused portion. However, there are a few situations in which your gap insurance refund request is likely to be refused, such as:

Your gap insurance policy has expired
The deadline to file a claim has passed
You failed to pay for your gap insurance policy

Calculating your gap insurance refund

The refund amount you will be eligible to receive will depend on how much your gap insurance policy costs and how much time is left in the term. Since many gap insurance policies in Canada have year-long terms, you can calculate your gap insurance refund by dividing your annual premium by the number of months in your policy term and then multiplying that number by the number of months left in your term.

For example, if you paid $300 for a 12-month gap insurance policy, that works out to $25 per month. If you have four months of coverage left when you cancel, you’ll get around $100 back.

When cancelling, be sure to confirm the exact refund amount with your dealer or insurer. Some companies may have cancellation fees or penalties for early cancellation.

What to consider before cancelling gap insurance

Before cancelling your gap insurance, check if there are any early cancellation fees or penalties. Also, make sure cancelling won’t go against the terms of your lease agreement—some leasing companies require you to keep gap insurance for the full lease term.

It’s also a good idea to double-check that your car’s actual cash value (ACV) isn’t less than what you still owe on your loan. If the ACV is lower and your car gets totalled in an accident, you’d be responsible for covering the difference yourself without gap insurance.

How to cancel your gap insurance

If you decide to cancel your gap insurance policy before your policy ends and you’re eligible for a refund, you’ll need to reach out to your insurance company to start the process. Keep in mind that most insurance companies won’t notify you if you’re owed a refund, and they’re unlikely to issue one automatically. To make sure you get reimbursed for the unused portion of your gap insurance, you’ll need to take the following steps for the cancellation process:

1. Review your policy

Before reaching out to your insurance provider, grab a copy of your policy and review it to confirm whether they offer gap insurance refunds and if you’re eligible for one. If you’re unsure or need a hand going through the details, a BrokerLink insurance advisor can help.

2. Gather necessary information and documents

When cancelling your gap insurance, it’s a good idea to start gathering all the necessary documents and information. Your insurance company, dealership, or lender will likely ask for things like:

A copy of your finance or lease agreement
A copy of your policy details
Proof that you’ve sold or traded your car
Confirmation that your loan has been paid off in full
Verification of your car’s current mileage—an odometer disclosure statement from the dealership is a great way to provide this

If you’re cancelling because you’ve paid off your car loan, you might also need to provide a payoff letter that details your remaining gap insurance balance. Having these documents ready will help streamline the process.

3. Purchase a new gap insurance policy if necessary

If you’re cancelling your current gap insurance coverage because you’re renewing your car insurance by switching to a new provider, make sure your new policy is ready to start right away. You don’t want to risk a lapse in coverage.

To avoid any gaps, ensure your new gap insurance kicks in on the same day your current coverage ends. Otherwise, you could lose eligibility for coverage if there’s a break in your gap insurance.

4. Contact the gap insurance company

Who you need to contact to cancel your gap insurance depends on where you purchased it—your insurance company, lender, or car dealership. Reach out to them and ask about their specific process and for any necessary forms to cancel your policy. Don’t forget to also request the forms needed to apply for a refund, as these might be separate.

5. Fill out forms

Once you have all the necessary forms, complete them and submit your cancellation and refund requests. If you’re unsure how to complete any of the forms or have questions, don’t hesitate to reach out to BrokerLink. We’ll connect you with a car insurance expert who can guide you through the process and answer all your questions about cancelling gap insurance coverage.

6. Get your refund

The final step is when your insurance company (hopefully) agrees to cancel your coverage and issue a refund. Depending on the company, your refund might come as a cheque or a direct deposit. Keep in mind that the refund process can take some time—it might be done in just a few days, or it could take up to six weeks. To get a clearer idea of the timeline, reach out to your insurance provider directly and ask about their specific process.

Learn more about gap insurance from BrokerLink

If you’re curious about gap insurance—what it covers, when it’s worth it, or anything else—reach out to BrokerLink today. Our team of car insurance specialists is here to help you understand how gap insurance works, whether it’s a good option for you, and even if you’re eligible for a refund.

As a full-service insurance brokerage, we can also assist with more than just gap insurance. Whether you need help purchasing a basic car insurance policy with all mandatory coverage, renewing an expired policy, or starting fresh with a new one, our advisors are ready to guide you every step of the way. Give us a call at 1-855-451-8748, send an email, or visit us at any of our locations throughout Canada to get started on your car insurance journey today!

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FAQs about gap insurance

How long do I need gap insurance coverage?

How long you need gap insurance depends on your situation. Some leasing companies or lenders require you to keep gap insurance for the entire duration of your loan, no matter how much of it you’ve paid off. It also depends on how long you keep your car. If you sell or trade it early, you might no longer need gap coverage and could cancel your policy.