If you’ve recently financed or leased a new vehicle, adding gap insurance to your policy could be a smart move. For many drivers, Gap Insurance in Colorado may not realize how quickly their car depreciates in value, leaving them financially vulnerable in case of an accident. Gap insurance helps bridge the financial shortfall between your auto loan and the insurance payout if your car is totaled.
What Is Gap Insurance in Colorado?
Gap insurance (Guaranteed Asset Protection) is an optional add-on designed to protect car owners from owing money on a totaled vehicle. If your car is declared a total loss due to an accident, theft, or natural disaster, standard full coverage insurance only pays the actual cash value (ACV) of your car at the time of the incident. Due to depreciation, this amount may be significantly less than what you still owe on your loan.
For example, if your vehicle is worth $20,000 but your loan balance is $25,000, your insurance payout would leave you with a $5,000 gap. Gap insurance covers this remaining amount, ensuring you don’t have to pay out of pocket.
According to the Colorado Attorney General’s Office, over $23.5 million in gap refunds have been issued since 2019, with 131,910 refunds given to drivers who opted for gap insurance when purchasing their vehicle.
How Does Gap Insurance Work in Colorado?
Many drivers overlook gap insurance when purchasing a new car, but it can be a cost-effective way to prevent financial strain. Unlike liability, comprehensive, or collision insurance, gap coverage focuses solely on covering the shortfall between an insurance payout and the outstanding loan balance in the event of a total loss.
Key Points to Remember:
- Gap insurance is only applicable if your car is totaled or stolen.
- It covers the difference between the ACV payout from your insurer and the remaining balance on your car loan.
- It does not cover repairs, mechanical issues, or vehicle depreciation under normal circumstances.
- Most insurers only offer gap insurance for new or nearly new cars (usually up to one model year old).
- The gap insurance payout typically goes directly to your auto lender, not to you.
Gap Insurance vs. Other Auto Coverages
Understanding how gap insurance compares to other coverages is essential when deciding whether you need it.
| Coverage Type | What It Covers | Who Offers It |
|---|---|---|
| Gap Insurance | Covers the difference between the insurance payout and outstanding loan balance if your car is totaled. | Offered by some insurers, auto lenders, and dealerships. |
| Comprehensive | Covers damage from non-collision incidents like theft, fire, and natural disasters. | Included in most full coverage policies. |
| Collision | Covers damage from accidents involving another vehicle or object. | Available from most auto insurance providers. |
Where to Buy Gap Insurance in Colorado
There are several ways to purchase gap insurance in Colorado. While most major insurance companies offer it, some lenders and car dealerships also provide gap coverage as part of their financing agreements. However, purchasing from a dealer or lender often comes with higher costs, as the coverage is rolled into your loan, meaning you may pay interest on it.
Insurance Providers Offering Gap Coverage in Colorado:
- Allstate: Covers both new and used vehicles with loan amounts up to $50,000. Deductibles under $1,000 are also covered.
- Liberty Mutual: Requires gap coverage to be purchased at the time of vehicle purchase. Available only for new cars.
- Nationwide: Offers gap insurance but requires policyholders to pay their deductible.
- Credit Union of Colorado: Provides gap coverage that pays the difference between the insurer’s payout and the remaining loan balance in case of a total loss.
How Much Does Gap Insurance in Colorado Cost?
Gap insurance costs vary depending on where you purchase it. Typically, buying it through your auto insurance provider is more affordable than getting it from a dealership or lender. While there’s no standard price for gap insurance, it is often added to a full coverage policy for an additional $20–$40 per year.
For context, the average cost of auto insurance in Colorado is:
- Full coverage: $2,796 per year
- State minimum liability: $576 per year
Should You Get Gap Insurance in Colorado?
While gap insurance isn’t legally required in Colorado, it can provide valuable financial protection. Here are some scenarios where it might be a wise investment:
- You have a new or nearly new vehicle: New cars depreciate quickly, often losing up to 20% of their value within the first year.
- You financed your vehicle with a small down payment: If you put down less than 20%, you are more likely to owe more than the car’s worth in the early years of ownership.
- Your loan term is 60 months or longer: Longer loan terms mean slower equity build-up, increasing the risk of being “upside down” on the loan.
- You’re leasing your car: Many lease agreements require gap insurance as part of the contract.
Before purchasing, compare your vehicle’s current market value with your outstanding loan balance. If the difference is significant, gap insurance might be worth considering.
Is Gap Insurance in Colorado Required?
No, gap insurance is not required by Colorado state law. However, lenders or leasing companies may mandate it as a condition of financing. Even if it’s not required, having gap coverage can save you from unexpected financial burdens if your car is totaled.
Can You Cancel Gap Insurance in Colorado?
Yes, most gap insurance in Colorado can be canceled at any time. If you’re considering canceling, ensure that your remaining loan balance is lower than your vehicle’s actual cash value. Contact your provider for specific cancellation procedures.
Final Thoughts on Gap Insurance in Colorado
Gap insurance in Colorado can be a valuable safety net for drivers with financed or leased vehicles. By bridging the financial gap between an insurance payout and an outstanding auto loan, it helps prevent costly out-of-pocket expenses. Before purchasing, compare your loan balance, car value, and gap insurance rates to determine if it’s the right choice for your financial situation.
For the best rates, consider shopping around and obtaining quotes from multiple providers to find affordable coverage that meets your needs. Whether you buy from an insurer, lender, or dealership, ensuring you have adequate financial protection is key to stress-free car ownership.
Want to know more about other insurances, Read our latest articles.
