Is gap insurance transferable if you sell the car? (2024)
Gap insurance is not transferable if you sell the car, but you could get a refund for any unused portion of the policy. You might need a new gap policy if your loan length exceeds 60 months and your car is less than three years old. Below, we'll explain what happens to gap insurance when you sell your car.
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Jimmy McMillan
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Jimmy McMillan is an entrepreneur and the founder of HeartLifeInsurance.com, an independent insurance brokerage. His company specializes in insurance for people with heart problems. He knows personally how difficult it is to secure health and life insurance after a heart attack. Jimmy is a licensed insurance agent from coast to coast who has been featured on ValientCEO and the podcast Modern Li...
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UPDATED: Feb 1, 2024
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Feb 1, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Gap insurance isn’t transferable when selling or refinancing a vehicle
- Gap insurance covers your loan and car value difference if it gets totaled
- Most warranties transfer to the new owner if you contact the company or dealership
Gap insurance isn’t transferable if you sell your car. However, your insurer may issue a refund for any unused portion of your policy, and you can find gap insurance rates for as low as $2/mo.In addition, while gap coverage won’t follow the new owner, any vehicle warranties will.
It’s worth knowing which types of auto insurance coverage can stay with the vehicle and which you need to cancel or update before finalizing the sale. This article helps you understand what gap insurance is, how to transfer gap insurance to another car, and what happens when you sell or trade in your vehicle.
Gap Insurance Isn’t Transferable When Selling or Refinancing a Car
When you sell your car, either to a dealership or a private buyer, you may have questions about any coverage you had on the vehicle. You should cancel your auto insurance to avoid paying any unnecessary costs. Since gap insurance is not transferrable, you might be entitled to a refund of the unused amount, and any warranties on your vehicle might be transferrable.
Gap Insurance
Whether you’re selling your vehicle to a private buyer, trading it in for a newer model, or refinancing your loan for a better rate, your gap insurance is not transferable. Since your coverage depends on what you owe and what your car is worth, anything that alters the terms will affect your policy. Any rates paid in advance, however, are not entirely lost.
If you sell your car or pay off your loan early, you may receive a refund for the unused portion of your gap insurance. Many companies issue a credit automatically, but it's good practice to contact your insurance company to notify them of the sale and find out how much your refund might be.Tracey L. Wells Licensed Insurance Agent & Agency Owner
While refinancing a vehicle is not the same as selling it to a new owner, it can still affect your coverage. Refinancing your vehicle involves paying off your original loan and negotiating a new loan agreement, which cancels any gap insurance you might have had. If your car is still eligible, it might be possible to purchase a new policy through your insurance.
Warranties
As proof of ownership, your title transfers to the new owner upon completion of the sale. Most warranties, like your title, remain with the vehicle through a change of ownership, although it’s important to note this does not happen automatically.
Call the dealership or warranty company to initiate a transfer of the warranty. The new owner will also need to contact them to complete the process and update the information on file.
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Gap Insurance Explained
Guaranteed asset protection (gap) insurance protects you if your car is stolen or severely damaged by covering the gap between what you owe and what your car was worth when it was totaled. Since it’s dependent on the vehicle and the terms of your loan, gap insurance is not transferable if you sell or refinance.
Read More: Does auto insurance pay if my car is stolen?
A vehicle that costs more to repair than its total worth is considered totaled, and even if your standard insurance compensates you, you are still liable for any outstanding balance on your loan. With newly financed vehicles, this can be a considerable amount. Gap insurance protects you from being obligated to make continued payments on an asset you can no longer use.
Learn More: Totaled Car Value Calculator
While beneficial for some, these policies are not ideal for every situation, and it helps to know when you should consider added coverage.
Why You Should Purchase Auto Insurance
Auto insurance options are designed to cover injuries to people and damage to property as a result of a traffic incident. Liability auto insurance is a requirement in every state, but you may want to purchase added coverage depending on your situation. A new vehicle is an important asset, and protecting your investment can provide valuable peace of mind.
When To Consider Gap Insurance
Gap insurance is generally sold at the dealership when you finance a new car, but it’s also available from most of the best auto insurance companies. You can usually purchase a gap policy within three years of initial financing and only for the most recent models of your vehicle. It’s rarely available if your car has already depreciated, so it may not be an option if you have an older vehicle.
These factors can help determine whether you should consider gap insurance:
- Down payment amount: If you didn’t put down a significant down payment, the risk of your loan amount exceeding your car’s value is higher.
- Loan length: Equity on your car loan will grow much slower if you have a longer loan length, meaning a higher chance of your loan exceeding the vehicle’s market value.
- Value depreciation: Certain vehicles may depreciate faster than others. So, you may end up owing more than your car is worth in that case.
- Leased vehicle: Gap insurance is a critical coverage for leased cars since they aren’t building equity.
Financing a new car under these conditions means you should consider purchasing gap coverage. It’s generally a requirement for you if your vehicle is a lease since you could face a substantial financial obligation if you lose the car to theft or damage.
Read More: Auto Insurance for Leased Vehicles
When To Consider Optional Coverage
In addition to gap insurance, you might consider optional coverage for specific circumstances that don’t involve collisions. Roadside assistance coverage, mechanical breakdown insurance, or rental car reimbursement coverage can protect you if your car breaks down or needs repairs.
Gap Insurance Isn’t Transferable: Final Thoughts
When selling your vehicle, it makes sense to wonder if your gap insurance is transferable. Knowing what you can and cannot transfer when you hand the keys over to a new owner helps you prepare and ensure a smooth process.
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— AutoInsurance.org (@AutoInsurance) March 14, 2023
Although gap and other auto insurance policies are beneficial, they are not transferable if you sell your car. On the other hand, most warranties can remain with the vehicle if you contact the dealership or warranty company to initiate the transfer.
Frequently Asked Questions
Is gap insurance transferable if I sell the car?
Gap insurance is typically not transferable if you sell the car. Gap insurance is tied to the specific vehicle and covers the difference between the actual cash value of the car and the remaining balance on your auto loan or lease. When you sell the car, the insurance policy stays with the vehicle and does not transfer to the new owner.
What happens to the gap insurance when I sell my car?
When you sell your car, the gap insurance policy remains in effect for the duration of its term, which is usually determined by the length of your loan or lease agreement. However, the coverage only applies to the original owner or lessee of the vehicle. If you sell the car, the coverage will no longer apply to you, and you will need to cancel the policy or notify your insurance provider about the change in ownership.
Can the new owner of my car benefit from the gap insurance?
No, the new owner of your car cannot benefit from the existing gap insurance policy. Gap insurance is designed to protect the original owner or lessee by covering the shortfall between the car’s actual cash value and the remaining loan or lease balance. The new owner would need to obtain their own gap insurance policy if they wish to have similar coverage.
Can I transfer gap insurance to my new car?
Gap insurance cannot be directly transferred to a new car. When you purchase a new vehicle, you will typically need to obtain a new gap insurance policy specific to that car. Gap insurance coverage is specific to the vehicle and the associated loan or lease agreement, so it does not carry over to a different vehicle.
What should I do with my gap insurance if I sell my car?
If you sell your car, you should contact your insurance provider to discuss the cancellation or adjustment of your gap insurance policy. They will guide you through the necessary steps and provide any relevant information about refunds or premium adjustments. It’s important to notify your insurance company about the change in ownership to ensure that you are not paying for coverage you no longer need.
What happens to gap insurance when you pay off your car?
Once you pay off your car, your gap insurance ends since there isn’t a gap between your car’s market value and the loan. Contact your gap insurer to see if you can get a partial refund.
Can gap insurance be refunded?
Yes, most dealerships and gap insurance providers will refund you any unused portion of your policy if you sell your car.
How does gap insurance work on a trade in?
You might wonder whether you can use gap insurance when trading in a car. Generally, a dealership pays off the remaining loan after you trade in a car, but if your loan amount is higher than your car value, gap insurance covers the rest.
How much will my gap insurance refund be?
Usually, your insurance provider will refund you for the remaining duration of your gap insurance policy. To calculate your refund, you can multiply the remaining months of coverage by your monthly gap insurance premium.
Why didn’t gap insurance pay off my loan?
Gap insurance is designed to pay the difference between your car’s value and the loan amount. It won’t pay off your entire loan.
Can I get gap insurance after I buy my car?
You can usually buy gap insurance any time after you purchase your vehicle.
Free Auto Insurance Comparison
Enter your ZIP code below to view companies that have cheap auto insurance rates.
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Jimmy McMillan
Licensed Insurance Agent
Jimmy McMillan is an entrepreneur and the founder of HeartLifeInsurance.com, an independent insurance brokerage. His company specializes in insurance for people with heart problems. He knows personally how difficult it is to secure health and life insurance after a heart attack. Jimmy is a licensed insurance agent from coast to coast who has been featured on ValientCEO and the podcast Modern Li...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.