Should You Get GAP Coverage for Your Motorcycle Loan?

GAP insurance, or Guaranteed Asset Protection, is a type of insurance add-on you can buy when you purchase your new motorcycle. Motorcycle GAP insurance or a GAP waiver helps cover the difference between what you owe on your loan and what your bike is worth if it’s totaled or stolen. 

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GAP coverage on your motorcycle helps you avoid a situation where you can no longer ride the bike but you still have to make payments on your motorcycle loan. Considering how fast motorcycles depreciate, GAP insurance can make a big difference. Here’s how it works.

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Key takeaways

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• Motorcycle GAP insurance protects you when your bike’s value is less than the amount remaining on your loan.
• You can purchase GAP coverage for your motorcycle at the dealer, through your lender, or as an add-on from your insurance provider.
• You can also add GAP protection when refinancing your motorcycle.
• It makes sense to add GAP insurance when you’re making a small down payment or financing the motorcycle over five years or more.

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How does motorcycle GAP insurance work?

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GAP insurance kicks in after your motorcycle insurance pays out. If your bike is stolen or totaled in an accident and you file a claim, the insurance company usually pays out the actual cash value of your motorcycle. However, that value might be much less than what you still owe on your loan. In that case, GAP coverage will pay off what’s left.

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Motorcycle GAP insurance coverage includes:

• The difference between the motorcycle’s actual cash value (ACV) and the balance remaining on the loan
• Protection against depreciation (where the motorcycle loses value more quickly than you can pay down the loan)

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It does not include coverage for:

• Repairs
• Maintenance
• Previous damage
• Deductibles
• Overdue payments
• Interest charges
• Negative equity from other loans

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A GAP waiver is a similar form of protection. The main difference between GAP insurance vs. a GAP waiver is that the waiver is included with your motorcycle loan instead of purchased separately through your insurance.

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When GAP insurance for a motorcycle makes sense

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There are several common scenarios where GAP coverage makes sense:

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• Small down payment: If you put down little or no money on your new motorcycle loan, there’s a greater chance that there will be a gap between what the motorcycle is worth and what you owe on your loan.
• Quick depreciation: Most motorcycles lose value quickly, dropping 10% to 20% (or even more) in the first year alone.
• Long loan term: If you stretched your motorcycle financing over five, six, or even seven years, your overall loan balance is typically going to be higher than the cash value of the bike due to interest.

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When you may not need motorcycle GAP coverage

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There are times when you probably don’t need GAP coverage on your motorcycle:

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• Short loan term: If you’re financing the motorcycle with a short, one- or two-year loan, you may not need GAP coverage because there won’t be much of a gap to cover.
• Aggressive loan payoff: Similarly, if you put down a large down payment, or you’re making extra loan payments each month, your loan balance will shrink enough to keep up with depreciation.
• The bike is used, not new: GAP coverage is intended to help with the rapid depreciation of new motorcycles. You won’t typically need GAP insurance when buying a used motorcycle. 

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How to get motorbike GAP insurance

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You can get GAP insurance for a motorcycle in several different ways. One is to buy it through the dealership at the same time you’re purchasing your bike. You can also get it from the lender you use to finance or refinance the motorcycle. Another option is to purchase GAP coverage from the insurance company that provides your motorcycle insurance policy.

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The cost of GAP insurance can vary depending on where you buy it, as can flexibility and cancellation policies. If you decide to purchase through your insurance provider, keep in mind you might be required to carry collision and comprehensive coverage, too. 

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Adding GAP coverage during a refinance

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With motorcycle refinancing, you replace your old loan with a new one — often with better rates or lower monthly payments. Refinancing can be a great time to add GAP coverage, especially if your new loan is higher than the bike’s value. RefiJet even includes motorcycle GAP insurance as an option in the refinance package.

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Adding GAP coverage through your refi lender is fast and convenient. Instead of paying an extra charge through an insurance provider, you can roll the cost into your loan. It’s also easy to add GAP protection even if you didn’t have it with your original motorcycle loan.

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Should you get motorcycle GAP insurance?

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Adding GAP insurance for a motorcycle is worth it when your loan balance is higher than the actual cash value of your vehicle. It makes sense to add this coverage for new motorcycles, especially when you have a low down payment or a long loan term. It’s also smart to add GAP coverage when refinancing if your loan balance is more than the motorcycle’s value. 

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Shop around to find the right provider for GAP motorcycle insurance. If you’re refinancing, adding a GAP waiver protects you from owing more than the motorcycle is worth. RefiJet can bundle GAP coverage right into your refinance loan so you know you’re covered.

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FAQs

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Below are answers to some common questions about motorcycle GAP insurance.

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What is motorcycle GAP coverage?

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GAP coverage protects you by paying the difference when the insurance payout on your totaled or stolen motorcycle is less than the amount remaining on your loan. 

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What is the difference between GAP insurance and GAP waivers?

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Both GAP insurance and GAP waivers protect you when your vehicle is stolen or totaled. A GAP waiver cancels the remaining debt, while GAP insurance pays it for you. Typically, GAP waivers are offered by your lender.

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Do I need GAP coverage if I refinance a motorcycle?

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Motorcycle GAP coverage is optional. However, it’s a good idea to add it when refinancing your motorcycle if the bike’s value is lower than your outstanding loan balance.

Is GAP insurance required for motorcycle loans?

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GAP insurance isn’t mandatory, but it can benefit you after purchasing or refinancing a new motorcycle. Because motorcycles depreciate quickly, it's common to owe more than the bike is worth at some point during your loan. If your bike is totaled or stolen, your insurance would pay the actual cash value and you’d be responsible for the remainder of the loan unless you had GAP insurance to cover it.

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How much does GAP insurance for motorcycles cost?

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The price of GAP insurance varies and depends on where you purchase it. Overall, you can expect to spend a hundred dollars per year or more on GAP coverage, potentially saving you thousands if your bike is totaled.

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