GAP Insurance Coverage
Today, let’s talk about GAP insurance that you may have on your motorcycle.
As you know, motorcycles have become more and more expensive. They now cost as much as some cars that we may buy. And it’s really common now to finance a motorcycle purchase.
The Problem with Financing Motorcycles
Of course, when we finance something, we run the risk of being upside-down on the value of that loan. What being upside-down means is that the fair market value of the motorcycle could be less than the payoff amount on the vehicle loan. So, if you buy a motorcycle and the motorcycle has a fair market value of $25,000 but the payoff on the loan is $30,000, then you’re going to be upside-down by five grand.
The Role Of GAP Insurance
GAP insurance is designed to span the gap between the fair market value of the motorcycle and the payoff amount of the vehicle loan.
Why You Need GAP Insurance
Let’s say that you’re hit by an at-fault driver and that at-fault driver only has $25,000 in property damage coverage and your motorcycle’s worth $25,000 but your payoff is $30,000, then you’re going to receive a check from the liability company — the liability insurance company — for $25,000.
But that’s not going to be enough money to pay off the loan. The liability insurance company is not responsible for paying off your loan, they’re only responsible for paying you the fair market value of a motorcycle. That’s Indiana law. So, you’ve got to come up with the extra five grand to pay off this loan or you’re still going to owe payments on a motorcycle that’s been destroyed.
How GAP Insurance Works
This is where GAP insurance comes in. GAP insurance will span the gap and come up with the extra five grand to pay off that loan. A lot of times, when we buy motorcycles, the finance officer at the dealership we’re buying it from will offer us GAP insurance and will also offer us an extended warranty on our motorcycle.
And the premiums for the GAP insurance and the cost of the extended warranty can be rolled right into the financing deal and you’re basically going to finance that premium and the purchase price for the extended warranty program.
That’s all fine and good, but make sure that you understand whether that GAP coverage is going to cover and include the amount by which the payoff amount on your loan is increased. After all, now you’re including the GAP premium and the extended warranty cost in the loan itself.
I’ve seen it happen that some GAP coverages don’t want to include that in the payoff. And so, even though you’ve got GAP coverage, you still fall $1,000, $1,500, even $2,000 short. That’s because the GAP coverage wouldn’t pick up the GAP premium and the extended warranty that got rolled into the financing contract.
What You Should Do
Be an educated consumer, understand what it is you’re buying and understand what that GAP coverage you’re purchasing is really going to cover. That way, there won’t be any surprises when you’re having an awful day. Your vehicle’s been destroyed, you’re probably dealing with injuries, and then you find out that your GAP coverage doesn’t span the entire gap of what you’re dealing with.
If you have any questions or problems, you’re welcome to reach out to me. We’ll hop on the phone together and figure things out. Stay safe out there, enjoy the ride and we’ll talk later.