Many motorcycle owners who purchase insurance are under the mistaken belief that any good policy will cover them completely and totally for the loss of the vehicle. To them, this means if the bike is stolen or totaled they will receive the amount of the bike including complete coverage of the remainder of the loan they might still have on the vehicle. Unfortunately, this is not true and the gap which ensues is why motorcycle gap insurance is so important. To cover that difference is the purpose of gap insurance for a motorcycle.
Most insurance policies will only cover you for the fair book depreciated value of your bike, not necessarily the total balance of the outstanding loan. So if you have a loan that has $18k left and your bike’s depreciated value is $16K, you will only get the 16K, and still owe the bank 2K. This is not a good situation. Gap insurance for a motorcycle is the insurance you buy to fill this gap. So the additional 2K would be covered through your purchase.
For many owners, this type of insurance is a good buy. Since many bikers purchase their bikes with little or no down payment, the likelihood of complete payout in the event of the bike being totaled or stolen is slim. The gap policy will cover you for whatever the difference is between the loan amount owed and the depreciated value.
Remember, gap insurance for a motorcycle is only to help you through a loss while you owe a loan and will cover only the gap between the two. Once your loan is paid or has reached a point where it covers or closely covers the depreciated value of the bike, you should drop the additional insurance. In many cases, the policy becomes unnecessary after the first two years of ownership. You can find out the correct timing of when to drop it by keeping an eye on the true value of the bike verses what you still own on your current loan.
