Gap Insurance in Colorado: Everything You Need To Know In 2024
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New vehicles typically lose about 20% of their value during the first year of ownership. If your car is totaled and you owe more on your loan than the car is worth, you might have to pay the difference yourself.
This is where gap coverage comes in handy for Colorado drivers. Despite my long career in insurance, I’ve noticed that many people aren’t fully aware of how gap coverage operates. For a complete guide to gap insurance, keep reading.
Key Takeaways
It’s insurance that covers the gap between your car’s loan amount and its actual value if it’s totaled.
You can opt for standalone coverage or include it in your car insurance policy.
Buying gap insurance from your car insurance company saves you money.
What Is Gap Insurance?
Guaranteed Asset Protection (GAP) insurance essentially covers the difference between the value of your vehicle and the amount you owe on it through a lease or loan. In the event of a total loss due to an accident, your insurance company typically reimburses you for the current market value of your car, which might be less than what you still owe.
A study conducted by CCC, an insurance software company, found that 20% of vehicles have been totaled rather than repaired since 2018. With the average price of new vehicles hitting $48,759 in 2023, it’s easy to end up owing more than your vehicle’s value, especially if you made a small down payment.
Note: When the expense of repairs outweighs its value, a vehicle is marked as totaled. To assess your car’s real cash value, insurers often turn to tools such as Kelley Blue Book or NADA.
Gap Insurance VS Full Coverage
Gap insurance and full coverage insurance broaden the scope of reimbursements available from your insurance provider, but they serve distinct purposes. Gap insurance compensates for the difference between your car’s actual cash value and the outstanding balance on your lease or loan.
Conversely, full coverage includes comprehensive and collision coverage, which handle costs resulting from events like fire, theft, vandalism, and animal collisions. Collision coverage specifically pays for repairs following collisions with other vehicles or objects.
| Gap Coverage | Full Coverage | |
| Applicable When the Car is Financed/Leased? | Yes | Yes |
| Required? | No | Yes, if the vehicle is financed/leased |
| Cost? | $61 per year | $2,542 per year |
| Deductible Apply? | Yes | Yes |
How Much Does Gap Insurance Cost?
Gap insurance typically costs $61 per year on average nationwide, as reported by Forbes Advisor. In Colorado, annual prices vary from $24 to $360, depending on whether you purchase it from an insurer or a dealership. Choosing insurance directly from your insurer tends to be more cost-effective, even though state rules limit dealership prices to 5% of the loan or lease amount.
How Does Gap Insurance Work?
To demonstrate how gap insurance works, consider this scenario: You purchase a $40,000 car, make a $5,000 down payment, and finance the rest. Later, you have an accident. If your car is valued at $20,000 and you owe $23,000, there’s a $3,000 gap. Without gap insurance, you’d have to pay this amount. With gap insurance, your insurer would pay the $3,000.
Reminder: Gap insurance is applicable when your car’s debt is higher than its market price. After your loan is cleared, the insurer won’t pay more than the car’s current cash value.
Where Can I Find Gap Insurance In Colorado?
You have the option to purchase gap insurance separately or as part of your auto insurance coverage. It’s more budget-friendly to include it in your car insurance policy, typically priced at $40 to $60 annually, whereas standalone policies can cost between $500 and $700.
Note: Some dealerships add the cost of gap insurance to your loan, which can result in higher expenses over time, particularly with interest charges. It’s wiser to integrate this into your car insurance policy and eliminate it after paying off your loan.
The following companies have been licensed to offer gap insurance within the state of Colorado.
- Allstate
- Nationwide
- Progressive
- State Farm
- Travelers
- Clearcover
- Mercury
Do I Need Gap Insurance In Colorado?
In Colorado, gap insurance isn’t obligatory. Nevertheless, experts suggest purchasing this coverage if you’re leasing or financing a car, particularly in certain circumstances.
It’s recommended to include gap insurance in your auto policy if you’re leasing or financing your car, as it’s generally inexpensive. However, if you’re budget-conscious, you could skip it unless you fall into any of these categories:
- Your down payment was less than 20%.
- Your financing terms span 60 months or more.
- Your vehicle depreciates faster than average.
- You carried over a previous loan balance to your new car loan.
How To Buy Gap Insurance In Colorado?
Here’s what you need to do to buy gap insurance in Colorado.
Figure out if you prefer to purchase gap coverage independently or include it in your car insurance policy, and then compare the costs of each option.
Identify a reputable company in Colorado that holds a license to sell gap insurance. Alternatively, you can buy this coverage from the dealership when completing your lease or loan paperwork.
If you’re thinking of getting gap insurance from your car insurance, make sure to call and check if it’s offered.
Secure coverage for your leased or financed vehicle.
FAQs
What does gap insurance cover in Colorado?
The purpose of gap insurance is to cover the difference between what your car is worth after a loss and the amount left on your lease or loan. Without it, you’d have to pay this amount yourself.
How much is Gap insurance in Colorado?
Gap insurance costs in Colorado vary depending on whether you purchase it separately or include it in your auto insurance. Standalone plans generally have a flat fee of $500 to $700, while insurers typically charge between $40 and $60 annually when bundled with existing policies.
Do I need gap insurance if I have full coverage?
Leasing or financing a car usually requires full coverage according to most lenders. Although gap insurance isn’t mandatory in these situations, it’s often suggested.
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