Gap insurance in Colorado

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Gap (“guaranteed asset protectIon”) insurance is offered by auto insurers in Colorado. Gap is a specific form of coverage which pays the difference between an outstanding loan on a car and the amount of insurance proceeds paid after the total loss of a vehicle. Gap coverage is intended to fill in this “gap,” for drivers who may be concerned about financial risk when driving a brand new vehicle.

What is gap insurance?

Gap insurance coverage is designed to provide financial compensation to a car owner who has experienced the total loss of a new financed vehicle. There can be a number of causes for the loss including an accident, natural disaster, fire or the theft of a vehicle. If you owe more on a car loan than the auto insurer pays, gap insurance in Colorado is available to make up the difference.

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, as it is not a standard coverage included in car insurance policies. However, gap coverage may be an inexpensive way to assure you do not lose a great deal 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 policy, liability, comprehensive or collision coverage, gap insurance in Colorado is designed to address a very narrow aspect of risk. For example, due to the nature of gap insurance, it does not typically apply when you are buying a used car which is older than one model year. Neither is gap coverage a catch-all, with a host of add-ons like towing, rental reimbursement or lost items in the vehicle.

Gap only covers the difference between the insurance payout and outstanding loan balance in the event of a total loss. Gap does not affect the process of getting a replacement vehicle after a total loss, either.

When do you use gap insurance?

Gap insurance will only apply when the loss on your vehicle is total. While this typically arises in conjunction with a serious accident, the damage can be caused by other perils covered in the policy; the distinction is not the cause, but rather, the totality of the loss.

For example, if your car is destroyed in your driveway by a falling tree during a storm, and you are paid an actual cash value of $10,000 by your insurer, you would still be in financial trouble if you owed $15,000 on the loan. Gap coverage, in this instance, would pay the $5,000 difference to the lender to satisfy the loan.

Gap insurance vs other coverages

There are three common components to a standard car insurance policy – liability, collision and comprehensive coverage. These coverages protect you financially from third party claims and injury to yourself and passengers, as well as damage to your vehicle or its contents. Gap insurance is related to collision and comprehensive coverage in that it is intended to assist you when your vehicle is destroyed. However, the similarities end there.

Gap insurance Comprehensive Collision
What it covers The amount of outstanding loan on the vehicle minus the insurance proceeds for a total loss. The cost of repair of damage to the vehicle from non-accident policy perils including fire, theft, and natural disasters. The cost of repair of a vehicle caused by an automobile accident.
Who offers it In Colorado, you are able to buy gap insurance from a car insurance company or a car dealer or Comprehensive coverage is provided by auto insurers as part of their standard policies. Collision coverage is provided by auto insurers as part of their standard policies.

Where to buy gap insurance in Colorado?

Gap insurance can be purchased in Colorado from the best insurance companies. Because car buyers often finance their purchases, gap insurance is commonly offered as a standard option by these companies.

Although it can potentially be more expensive, gap coverage can also be bought directly from a dealer, or the lender who financed the purchase of the vehicle. 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 for it as part of the loan payment.

Gap insurance companies in Colorado

Insurance companies in Colorado offer gap insurance coverage as optional with car insurance policies. Carriers and dealers providing gap coverage in Colorado include:

  • Allstate – Allstate offers broad gap coverages which protect 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 that gap insurance be purchased when the vehicle is purchased. This insurance company only provides gap coverage to new car purchasers.
  • Nationwide – Nationwide offers gap insurance but still requires the insured to pay the deductible.
  • Credit Union of Colorado – If your vehicle is stolen or totaled, the credit union’s “Guaranteed Asset Protection” pays the difference between your car insurer’s payment and the outstanding loan balance.
  • Automotive Search Inc. – Gap protection is provided by this car dealership for vehicles valued up to $100,000.

Frequently asked questions

How much is gap insurance?

Gap insurance may be purchased from three sources — a car insurance company, lender or car dealer. In most instances, gap coverage is more expensive when it is purchased from a lender or dealership. It is recommended to compare these costs with a quote from your car insurance company for gap coverage if you want to ensure you are getting the best rates.

Is gap insurance required in Colorado?

Gap insurance is not required to be purchased in Colorado. However, dealers or lenders may have some requirements for gap coverage as a condition of sale and financing. Because there can be a significant financial investment at stake, some drivers may consider it necessary to have gap coverage.

Can I cancel my gap insurance coverage?

In most cases, a gap coverage policy can be cancelled 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. Contact your gap insurance provider for the specific details regarding cancellation.

Written by
Rick Hoel
Insurance Contributor
Rick Hoel is an international business attorney and legal and insurance writer for Bankrate.com, Reviews.com and Accessibility.com. Over the last several years, he has covered topics dealing with personal and commercial insurance and technology and the law. Rick is General Counsel and Director of Risk Management and sits on the Board of Power Stow Americas Inc., a subsidiary of Power Stow A/S in Denmark, the world leader in the supply of tracked conveyor systems to the airline industry.
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