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.
- There were 5.4 million motorcycle crashes in 2010. 3.8 million were property-damage-only crashes. (NHTSA).
- 45,555 motorcycles were stolen in 2015. Only 38% were recovered. (National Insurance Crime Bureau).
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.
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What Is Motorcycle Gap Insurance?
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.
How Does Motorcycle Gap Insurance Work?
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.
Is Gap Insurance Right for All Motorcycle Owners?
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:
- Do you owe more on your motorcycle than what it is worth?
- Would you be able to cover the difference if your bike were totaled?
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.
- If you put zero or very little money down on your bike loan, gap insurance might be a good idea, especially for the first few years that you own your bike, when it depreciates faster. If you made a significant down payment, you can probably forgo gap insurance.
- If your bike model depreciates more rapidly than most, gap insurance may be a good idea for you.
- If you are purchasing a used motorcycle, gap insurance is not an option. Gap insurance is only for new motorcycles.
- Some regular motorcycle insurance policies pay the difference between the market value of your motorcycle and the balance of your loan if your bike is totaled. Check your policy careful first before deciding if you need gap insurance.
What Is Loan/Lease Coverage?
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.
How To Find Affordable Motorcycle Gap Insurance
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 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.