Suppose you just bought a brand new Harley-Davidson Road King Classic three months ago, and someone stole it from your driveway while you were sleeping. No worries since you purchased full coverage motorcycle insurance as required when you applied for a loan. Right? Not exactly...

Get more info about protecting your motorcycle from thieves.

Most motorcycle insurance policies will offer coverage for a total loss in the event of an accident, natural disaster or theft. However, you will likely only be reimbursed for the depreciated market value of the bike, and not the amount you owe for your loan.

So, if you chose not leave a down payment for your purchase, your Harley Davidson likely depreciated quicker than the amount of money you have contributed towards the financing payments. Therefore, since your insurance policy is only going to cover the depreciated value of the bike, you are responsible for the total difference in the compensated amount and what you owe for your loan.

Motorcycle owners are most vulnerable to not being reimbursed enough to cover the value of their bike during the first two years of ownership. However, there is an insurance option that will help bike owners avoid this situation.

The solution is called 'gap' insurance'. Gap insurance is a total loss policy that will reimburse you the difference between the amount your insurance company pay’s you for a total loss on your bike and the amount you owe for your motorcycle loan.

For example, suppose the depreciated value of your Harley-Davidson Road King Classic is $12,000, but you owe $14,000. In the event that your bike is totaled, your insurance carrier will likely pay you the depreciated used market value of $12,000. However, you still owe $14,000, creating a gap of $2,000 ($14,000-$12,000=$2,000). Gap insurance will cover the $2000 gap that you still owe for your motorcycle loan.

Tips that will help you determine if gap insurance is right for you:

- If you utilized a 0% down payment loan for a financing term of 48-84 months, you should obtain gap insurance. On the contrary, if you left a down payment of 15% or more for your purchase, you don't need gap insurance.

- Some motorcycle models depreciate faster than others. If you have purchased a bike that fits this classification, buying gap insurance would be a wise decision. You can get an indication if you will be upside down on your motorcycle loan by comparing the depreciation rate of your motorcycle with the pay down of the principal.

- It is possible that your full coverage carrier will reimburse you for the difference between the market value and what you owe. If your policy offers this type of 100% coverage, you obviously do not need 'gap' insurance.

- Are you buying a pre-owned motorcycle? It is important to note that gap insurance is only available for new bike purchases. Therefore, it is advised that you leave a down payment of at least 15% to avoid owing more for your bike than it is worth.

-  Determine if the cost for motorcycle gap insurance exceeds the benefits.

In conclusion, depending on the situation, gap insurance is an excellent source for financial security. Each buyer is going to have to analyze their personal situation and review the factors above to determine if buying gap insurance is the right choice.


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