What Is Gap Insurance in Colorado?

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October 21, 2022

If you financed a brand new vehicle deemed a total loss in an accident, you could recover financial compensation through gap insurance.

Gap insurance in Colorado means “guaranteed asset protection.” Gap insurance is a type of insurance you can use if your car is a total loss after an accident. Specifically, this type of insurance will pay the difference between the outstanding car loan and the insurance coverage. The name suits the purpose of filling in the “gap” for specific drivers. Gap insurance can benefit drivers with financial risk when driving a new vehicle.

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What Is Gap Insurance?

If you financed a brand new vehicle deemed a total loss in an accident, you could recover financial compensation through gap insurance. Gap insurance covers losses from various causes, including car accidents, natural disasters, fires, and theft.

So, let’s say you get into a vehicle collision with a car you still owe a loan on. If you owe more than auto insurance covers, gap insurance will cover the difference.

How Does Gap Insurance Work in Colorado?

Gap insurance is not standard coverage included in car insurance policies. Therefore, most drivers probably don’t have gap insurance as a top priority when purchasing a car and getting an insurance policy. However, it can be an excellent investment to prevent a whopping out-of-pocket bill in the event that your vehicle becomes damaged beyond repair.

Before you decide if gap insurance makes sense, it’s important to understand how it works. Gap insurance is not a catch-all policy with add-ons like towing, rental reimbursement, or lost items in the vehicle. It will strictly cover the difference between an outstanding loan balance and the insurance payout. If your vehicle is a total loss after an accident, gap insurance won’t cover rental or replacement vehicle costs either.

Standard insurance policies in Colorado cover liability and comprehensive or collision coverage. Gap insurance, on the other hand, addresses a very narrow aspect of risk. Typically, since gap insurance is designed to cover the difference on newer financed vehicles, policyholders don’t get it for cars older than one model year.

When Do You Use Gap Insurance?

You would use gap insurance after a total loss of a vehicle. For example, total losses are common after serious car accidents. But, there are other types of damage that gap insurance can cover. The determining factor for whether gap insurance can be applied is not the cause of the damage but the totality of the loss.

For example, let’s say you get into a car crash, and your insurer pays you $15,000. However, if you still owe $20,000 on the loan and have gap insurance, you’re on the hook for $5,000. Gap insurance would cover the $5,000 difference. Therefore, they would pay the difference to the lender to repay the loan.

You may want to consider buying gap insurance for your new car or truck if:

You made less than a 20 percent down payment on your vehicle and now have a big auto loan
You financed your vehicle on a long-term loan
You leased a vehicle (in which the owner or dealer may require you to carry gap insurance)
If you purchased a vehicle that depreciates faster than average
You have roll-over negative equity from a previous car loan into a new loan
If you drive more than 15,000 a year ( as this will speed up depreciation)

How Is Gap Insurance Difference From Other Types of Coverage?

The value depreciates when you lease a new car or truck. As a result, most cars lost 20 percent of their value within one year. Standard car insurance policies cover the depreciated value of a car. So if you get into an accident, a standard insurance policy might reimburse you for the current market value of the vehicle at the time of the claim. Standard insurance policies also have three common components – liability, collision, and comprehensive coverage. These types of coverage generally provide financial protection from third-party claims, property damage, and injuries.

On the other hand, gap insurance is related to collision and comprehensive coverage. It’s intended to assist you if your vehicle is destroyed. It will also cover the difference between what your vehicle is currently worth and what you owe on the car loan.

Where to Buy Gap Insurance in Colorado?

You can purchase gap insurance in several different ways in Colorado. First, you can buy it as an add-on to your current insurance policy. Most gap insurance policies with collision and comprehensive coverage will only add about $20-$40 to your annual premium. It may be cheaper to buy it from an insurance company than a dealer.

You can also go directly through a dealer. However, going through a dealership could cost you $400-700 a year. Or, you could buy it through the lender who financed the purchase of your vehicle. If you buy it from a dealer or lender, it’s often packaged as part of the loan.

It’s best to compare the costs through a dealer or lender with a quote from your insurance to ensure you get the best rate.

Is Gap Insurance Required in Colorado?

No. Gap insurance is not a requirement in Colorado. However, car dealerships and leaders often require gap insurance as a condition of a financed sale. Since many drivers have a significant financial investment at stake, they opt to buy gap insurance coverage.

Can I Cancel My Gap Insurance Coverage?

You can sometimes cancel a gap coverage policy with a prorated refund. That means

In most cases, you can cancel a gap coverage policy with a prorated refund. If you plan on canceling, make sure any loan balance has been reduced to a level well below your vehicle’s actual cash value. Then, contact your gap insurance provider for specific details regarding the cancellation.

Gap Insurance Companies in Colorado

Insurance companies in Colorado offer gap coverage as optional add-ons to car insurance policies. In addition, carriers and dealers like Allstate, Liberty Mutual, Nationwide, Credit Union of Colorado, and Automotive Search, Inc., provide gap insurance in Colorado.