Gap insurance in Colorado
Drivers in Colorado who finance or lease a new car may want to consider adding guaranteed asset protection, or gap, insurance to their policy. Simply put, gap coverage pays the difference between your car’s depreciated value (the actual cash value) and the amount you own on your car loan, if the latter is greater.
What is Colorado gap insurance?
Gap insurance is designed to provide financial compensation to a car owner who has experienced the total loss of a new financed vehicle. This endorsement is added on top of full coverage, which includes comprehensive and collision insurance.
In the event your car is totaled in a covered incident, a standard full coverage auto policy with collision and comprehensive coverage typically pays out the vehicle’s actual cash value (ACV). The ACV takes into account depreciation and is therefore unlikely to align with the amount you paid for the vehicle. So, if the standard insurance payout isn’t enough to fully cover what you still owe on your car loan, having gap insurance in Colorado may help make up the difference.
As an example, consider what might happen if you have a six-month-old car with a loan that currently stands at $25,000. The ACV of the car may only be $20,000. That is likely to be the amount you would receive from your insurer after an accident, unless you also have gap coverage. With gap insurance, the $5,000 discrepancy should also be covered, minus any deductible, leaving you with no out-of-pocket payment to retire the loan.
According to the Colorado attorney general’s office, more than $23,500,000 in gap refunds have been issued in the state since 2019. This translates into 131,910 refunds given to drivers who purchased this coverage for their new vehicles.
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Powered by Coverage.com (NPN: 19966249)
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
How does gap insurance work in Colorado?
Gap coverage may not be at the top of your mind when purchasing a car and obtaining insurance. However, gap coverage may be an inexpensive way to avoid paying your remaining loan balance out of pocket in the event your vehicle is damaged beyond repair. It is important to understand how gap coverage works before deciding if it might be beneficial for you.
Unlike the standard components of a full coverage policy, which may include liability, comprehensive and collision coverage, gap insurance in Colorado is designed to address a very narrow aspect of risk. Gap only covers the difference between an insurance payout after a covered claim and your outstanding loan in the event of a total loss.
Due to the nature of gap insurance, it is not typically available when you are buying a used car that is older than one model year. Gap coverage is not the same as new car replacement coverage, either. The only time gap insurance will help you is if your vehicle is totaled or stolen and not recovered, and you owe money beyond what your collision or comprehensive insurance will cover. In that situation, the gap insurance payout will generally go directly to the holder of your auto loan.
Gap insurance vs other coverage types
Colorado’s minimum requirement for car insurance includes liability coverage of 25/50/15; which translates to $25,000 bodily injury liability per person per accident, $50,000 for bodily injury total per accident and $15,000 for property damage liability. Liability covers the other driver, their passengers and property in an at-fault accident. Many insurance experts would recommend that you purchase more than these minimums to be more fully financially protected.
A full coverage policy usually includes liability insurance plus optional collision and comprehensive coverage. These types of insurance cover damage to your own car in an accident. Gap coverage can be added to your policy and may help augment the financial protection you receive from the other types of coverage. Although they generally cost more than minimum insurance, you may find affordable full coverage policies by shopping around and making use of discounts.
| Gap insurance | Comprehensive | Collision | |
|---|---|---|---|
| What it covers | Generally, the amount of the outstanding loan on the vehicle minus the insurance payout after a total loss. | The cost of repairing damage to a vehicle from non-accident policy perils including fire, theft and natural disasters. | The cost of repairing damage to a vehicle caused by a collision with another vehicle or stationary object. |
| Who offers it | In Colorado, you may be able to buy gap insurance from a car insurance company, lender or dealership. | Comprehensive coverage is offered by most auto insurers and may be required by your lender or lessor. | Collision coverage is offered by most auto insurers and may be required by your lender or lessor. |
Where to buy gap insurance in Colorado
You can purchase gap insurance in Colorado from several insurance companies. Although not every carrier offers gap insurance, it is a relatively common product sold by many providers.
Gap coverage might also be available directly from the dealership or the lender who financed the vehicle; however, it can potentially be more expensive than buying it through an insurance company. Often, when the coverage is purchased from a dealer or lender, it is packaged as part of the loan — meaning you may end up paying interest on it.
Gap insurance companies in Colorado
Insurance carriers and lenders that provide gap coverage in Colorado include:
- Allstate – Allstate offers gap insurance that protects both new and used vehicles and covers loan amounts up to $50,000. The coverage also includes payment of deductibles below $1,000.
- Liberty Mutual – Liberty Mutual requires gap insurance to be purchased when the vehicle is purchased. To qualify, the vehicle must be new.
- Nationwide – Nationwide offers gap insurance but requires the insured to pay the deductible.
- Credit Union of Colorado – If your vehicle is stolen or totaled, this credit union’s gap coverage pays the difference between the insurance company’s payout and the outstanding loan balance.
Frequently asked questions
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Gap insurance may be purchased from three sources — a car insurance company, a dealership or a lender. In most instances, gap coverage is more expensive when it is purchased from a dealer or lender. Experts recommend comparing quotes to ensure you are getting the best rate. When you purchase gap insurance, the cost is added on to your policy premium. While average gap insurance rates are not available, the average cost of a full coverage car insurance policy in Colorado is $2,796 annually, while state-mandated minimum coverage is available for an average of $576.
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That depends on your circumstances. If you have a new or fairly new used car, and you have a car loan, it may be worth considering gap insurance to avoid the possibility of having to pay out-of-pocket to retire the loan if your vehicle is totaled. To decide if you need gap insurance, it may be helpful to compare the ACV of your vehicle with your remaining loan balance and gap insurance quotes. If the difference between your vehicle’s value and the remaining loan would cause you financial strain, or if the cost of gap insurance is much lower, it could be worthwhile.
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Gap insurance is not required in Colorado. However, dealers or lenders may have requirements for gap coverage as a condition of financing. Even if it’s not required, experts recommend considering gap insurance when purchasing a new car. Before deciding, it’s often best to speak with an insurance professional to see if gap coverage is right for you.
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In most cases, a gap coverage policy can be canceled at your discretion. Contact your gap insurance provider for specific details regarding cancellation. Before canceling, you may want to make sure your loan balance is well below your vehicle’s actual cash value to avoid paying out of pocket for the remaining loan should your car be totaled.
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