Today, let’s talk about GAP insurance.
You know that insurance is something that we all have to have. It’s not the most interesting subject, but it can be downright confusing, and GAP coverage is one of those potentially confusing things.
What Is GAP Coverage?
GAP coverage is designed to span the difference or the gap that exists between the fair market value of a bike that’s been destroyed and the loan payoff amount on that bike.
It plays out like this: let’s say that you purchased a bike for a fair market value of $30,000 and you took out a loan on the bike with a payoff of $35,000, if somebody hits you and destroys your bike, their insurance company is only legally obligated to pay the fair market value on the bike, which will be 30 grand. And yet, you still owe 35 grand to pay off the loan.
GAP insurance will come up with the extra $5,000 to span that difference. This means that you’ll walk away with having the loan completely paid for and you don’t take a deficit or a loss because somebody else destroyed your bike.
When GAP Insurance Can Get Complicated
Here’s what we ran into recently: a client of ours had GAP insurance that they purchased through the dealership when they bought the bike and financed it. They also bought an extended warranty. But our client also had GAP insurance that was included, at no additional cost, through their vehicle insurance policy that they had bought through Progressive or whoever it was.
In any event, we were trying to decide which GAP coverage we were going to use to span the difference between the fair market value and the payoff value for the loan and we learned something. The GAP insurance provided by the insurance company would not include the cost of the GAP insurance premium and the extended warranty that our client had bought during the purchase of the vehicle that they had rolled into the financing.
So, if they used the GAP coverage that came with their motorcycle insurance policy as an add-on, it was going to still fall short by a little bit of money because it wasn’t going to include the cost of the financing company’s GAP coverage and the extended warranty that they had purchased.
Additionally, using the GAP coverage on their own policy was going to be a claim on their policy and that was going to ding them and leave them with having to pay higher premiums.
So, instead, we ended up using the GAP coverage that our client had purchased when they financed the motorcycle. That GAP coverage included the premium for the GAP coverage itself plus the extended warranty that they had rolled into the financing.
Our client was able to get the entire balance of the motorcycle loan paid off, and by using the GAP coverage provided by the financing company, it wasn’t a claim on our client’s motorcycle insurance policy.
As a result, it came out a win-win. Our client didn’t take any kind of claim, his policy premiums remained the same, and everything turned out very well. But this is something that a lot of people don’t know or understand about GAP insurance.
What You Should Do
So if you find yourself in the unfortunate circumstance of having your bike totaled in an accident, be careful with how you handle your GAP insurance. After all, not all GAP insurance policies are created equal.
If you are in an accident and you need help, feel free to reach out to me. We’ll get on the phone and I’ll walk you through everything and make sure that things come out as best as they can for you.
Stay safe out there, enjoy the ride and we’ll talk later.