There were about 8.4 million registered motorcycles on the road in 2014. (National Highway Traffic Safety Administration/NHTSA). Many of those motorcycles were stolen or damaged in crashes, resulting in a total loss.
If you were involved in a motorcycle crash, would your motorcycle insurance policy reimburse you for a total loss? In some cases, it might not.
You might have purchased a full-coverage motorcycle insurance policy and assumed that you had coverage even if your bike was stolen or totaled in an accident. But have you considered what happens when your bike depreciates faster than you pay off your loan? If you have a total loss, your insurance company will probably only reimburse you for its actual cash value, or the amount that the bike is worth at the time of the loss. What if you owe more on your loan than what the bike is worth? Will you be able to pay off the remaining balance?
Motorcycle gap insurance pays for the gap between what you owe on your motorcycle and what it is worth if it is stolen or totaled in an accident.
Let’s say that you purchased a new motorcycle for $11,000, with no money down on your loan. Like most new vehicles, the bike depreciates quickly. Six months later, you total your motorcycle. While the bike is now worth $9,500, you still owe around $11,000 on your loan.
Under the terms of your motorcycle insurance policy, your insurance company will only pay out the depreciated actual cash value of the bike, or $9,500. How will you pay off the additional $1,500 you owe to your lender?
If you have motorcycle gap insurance, you will be reimbursed an additional $1,500 to fully pay off your motorcycle loan.
Adding motorcycle gap insurance could potentially save you thousands of dollars if you are in an accident. You might be able to buy motorcycle gap insurance from your lender or your motorcycle dealer, but it is typically far more affordable to purchase it from your insurance company. What’s more, purchasing gap coverage from your insurance company makes the claims process easier.
Motorcycle gap insurance sometimes has other restrictions and limits that apply, and it may only cover certain types of losses. Most insurers require that you carry comprehensive and collision coverage on your motorcycle in order to buy motorcycle gap insurance. Motorcycle gap insurance only applies if your motorcycle is deemed to be a total loss due to theft or an accident.
To determine if motorcycle gap insurance is a good choice for you, compare what you owe on your motorcycle loan to its worth if it were totaled. Then ask:
If you don’t think you could pay the difference, gap insurance may be the right tool to help you out. Here are some other tips.
Loan/lease coverage is like gap insurance coverage, but there is a limit on the amount the insurance company will pay to cover the gap between what you owe on your motorcycle and its actual cash value. Loan/lease coverage only provides a predetermined percentage of your bike’s market value, usually around 25%. That means that loan/lease coverage may not cover the entire gap in some cases.
Motorcycle gap insurance is recommended if you owe more than your bike is worth, which often happens in the first few years of a loan period. It will probably only cost you a few extra dollars every month, but might save you thousands if you have a total loss.
An independent Trusted Choice® agent can help you find motorcycle insurance and motorcycle gap insurance that fits your needs and budget. Contact a local agent today to start getting fast quotes from multiple insurance companies.