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Do You Need Motorcycle Gap Insurance?

If you take out a loan to purchase your motorcycle, there's a risk you may end up owing more on the bike than it's worth due to depreciation. This can be a serious problem if you ever wreck your bike, because the insurance company will typically only give you the depreciated value of the vehicle, leaving you with the balance left on the loan. Gap insurance can help eliminate this liability by paying the difference between the loan amount and the market value of the motorcycle at the time of the accident.  Before you whip out your checkbook, though, here are two things to consider to help you determine if gap insurance is right for you.

The Rate of Depreciation

Like cars, motorcycles begin depreciating the moment they're driven off the lot. However, the rate of depreciation varies widely between manufacturers and sometimes even models. For instance, one bike lost a little over 48 percent of its value in 2008 while another only lost 17.5 percent over the same time period.

Before deciding to purchase gap insurance, research how much depreciation you can expect during the first years of ownership. If the value of your bike stays in line with the amount you owe on your loan, then you probably don't need gap insurance. On the other hand, if the market value of your ride drops dramatically, then you may want to get the extra insurance.

Collision Coverage Settlement Type

If you purchase comprehensive or collision insurance coverage, you'll have the option to choose the way the insurance company determines how much to pay for your bike if you total it. There are three options:

  • Actual cash value – The insurance company will give you the current depreciated market value of the bike.
  • Replacement cost – You'll receive the replacement value of your bike, and you won't lose money for depreciation.
  • Agreed value – With this option, you and the insurance company comes to an agreement about the value of the motorcycle before the policy goes into effect, and this is the amount you'll be given if you total your ride.

You can eliminate the need for gap insurance if you pick the replacement cost or agreed value options for your settlement type, because these two choices provide the biggest chance of avoiding being hit with depreciation.

Gap insurance can help protect your finances if you are unfortunate enough to get into an accident shortly after buying your motorcycle. However, consider your situation carefully to avoid purchasing something you don't really need. For more information, contact Klondike Insurance Agency or a similar company.