What is Motorcycle GAP Insurance and How to Take the Best out of it?

Motorcycle gap insurance covers the difference between the bike’s depreciation and the financing cost you paid at the dealership.

If a motorcycle is totaled or stolen in the first days of ownership, the actual cash value of the bike is likely less than what you owe for it. Gap insurance covers the difference between what the policy pays and your remaining financial obligation.

How Does Motorcycle Gap Insurance Work?

Imagine that you’ve just purchased a beautiful new Harley-Davidson Low Rider® El Diablo at the dealership. Your excellent credit score lets you pick up the $30,000 bike with no money down.

Everything is going great until four months later when you total the motorcycle in an accident. The actual cash value of the El Diablo is now $24,000. You still owe $28,500 on your loan.

Under the terms of your insurance policy, you only receive the depreciated cash value of the bike. That means you receive $24,000 minus whatever deductibles are present. You will receive that figure if you’re capped to less than that amount.

How do you pay the remaining amount that you owe the lender?

With motorcycle GAP (Guaranteed Asset Protection) insurance, you’d be reimbursed the remaining $4,500. This coverage can potentially save thousands of dollars in an accident without needing to pursue another driver or rider in small claims court for the difference.

How Much Is Gap Insurance for New Motorcycles?

Motorcyclists can add the best motorcycle gap insurance for their needs at a dealership or through their preferred insurance company to protect themselves from depreciation in that first year.

The cost is typically between $400 to $700 when you buy it through the dealership. Most insurance companies charge between $20 to $50 annually when adding it to your policy.

Each insurer has different terms and conditions to consider, so you’ll want to compare policies to make the best choice. If the depreciation amount is only a little more than what you’d pay for coverage, it might be worth assuming this risk to save some money.

Without gap insurance, you could be stuck paying off a remaining lease or loan balance on a motorcycle you can no longer operate.

Some lenders might require motorcycle gap insurance, so you’ll want to know what to expect before walking into the dealership.

Do Motorcycle Gap Insurance Cover DUI Accidents?

Some states, including California, allow insurance companies to issue contracts with language that excludes coverage if you’re convicted of operating a motorcycle under the influence of alcohol or drugs.

If your insurance denies coverage under a DUI clause, you’ll want to get the written policy language from your insurer that states the exclusion is possible.

Gap insurance will not cover losses in this event because that coverage is meant to cover the difference between what you owe to a creditor vs. the fair market value your policy pays when a total loss occurs.

Accidents are covered by your liability, comprehensive, and collision policies you’re usually required to have when financing a motorcycle purchase.

Should your insurance deny coverage because of a DUI conviction, you can be sent the bill for damages. You’d still be responsible for the loan, and gap insurance might not offer payment.

Where Can I Buy Gap Insurance?

Most insurance companies offering nationwide coverage provide gap insurance. That includes insurers like Progressive and GEICO.

Your sales representative at the dealership will likely add motorcycle gap insurance to your contract. You have the right to request its removal.

Most riders purchase gap insurance from the same company they get full coverage from for a financed motorcycle purchase. You can shop around for the best deal.

What If I’m Leasing My Motorcycle?

If you decide to lease a motorcycle instead of purchasing one, you might still need gap insurance to protect your finances.

Your best option in this circumstance is to ask about loan/lease coverage. It functions a lot like motorcycle gap insurance, but there is a limit on how much is paid to cover the difference between what is owed and the cash value.

Loan/lease policies offer a predetermined percentage of the market value. It’s typically about 25%, but it could be significantly less. That means there might be insufficient funds available to cover your entire debt.

Leases aren’t common at motorcycle dealerships, but they do exist. Some financing companies provide this option, but you’ll need to expect up to a 20% down payment to qualify.

Unlike automobile leases, your contract for a motorcycle doesn’t usually have a mileage restriction to it.

Is Motorcycle Gap Insurance Worth It?

Is motorcycle gap insurance worth the investment in your situation? To answer that question, you’ll need to compare what you’d owe on loan with what you’d receive as a fair market value payout if the bike were totaled.

Once you’ve made that comparison, you’ll need to ask yourself two questions.

• Would you end up owing more for the motorcycle than it is worth in the first year or two of ownership if a complete loss occurred?
• If the bike is totaled, can you financially cover the difference between its value and what you owe?

If the difference between what you owe and receive is significant, motorcycle gap insurance is a useful product that could help.

Some motorcycles depreciate faster than most, so you’ll want to review the value reduction schedule to see what the gaps could be during a total loss. Those who don’t make a down payment or have a small one will want to do the same.

If you make a large down payment or purchase the bike outright, gap insurance is something you can typically forego.

Motorcycle gap insurance is only for new bikes.

Some insurance companies will pay the difference between the fair market value of a motorcycle and your loan balance if it’s totaled.

The best motorcycle gap insurance will reduce loss risks if the bike gets totaled while you owe more than it is worth. Before agreeing to this coverage, you’ll want to review your policy to see if it is even necessary.