What is motorcycle GAP insurance?

How does finance GAP insurance work?

Let’s say you buy a motorcycle for £10,000 with a finance package and take out GAP insurance as well. On the second day of owning your new motorcycle it is stolen and not recovered. You might think your insurance will cover you and pay off the finance but this is where GAP comes into play.

The insurance company will pay out on the ‘book price’ of the motorcycle, let’s say it’s £8500, meaning you have a shortfall of £1500 to pay in order to settle the finance. The GAP insurance will cover this £1500 shortfall.

There are several types of GAP insurance, including Return to Invoice (RTI), Return to Value (RTV) and Replacement GAP Insurance.

Return to Invoice (RTI)

This is the ‘original’ GAP insurance and the policy will pay the difference between how much the insurance pays out and how much finance is outstanding. Often this is only available on new motorcycles and scooters and must be taken out within a period of time (usually 90 days) of financing the new vehicle.

Return to Value (RTV)

An RTV GAP policy pays the difference between the insurance valuation and the value of the vehicle when you took out the GAP insurance. Let’s say you take out RTV GAP on a 2-year old bike worth £7,000 and the insurance company pay out £5,000, the RTV GAP could cover the £2,000 difference. In a majority of cases you’ll struggle to get this type of policy on a bike over 5 years old.

Replacement motorcycle GAP (Vehicle Replacement Insurance)

This is a popular product in the car world but less so in motorcycling. The idea being that if your motorcycle cost £10,000 when new but was written off after 2 years with a value of £7,000 the VRI GAP would cover the difference between the insurance payout and the cost of that motorcycle at today’s prices (for example the bike you paid £10,000 for 2 years ago might now cost £11,250).

Is motorcycle GAP insurance a good idea?

If you’re buying a motorcycle with a small deposit (i.e £99) then GAP insurance could be an attractive option as the amount of finance you’ll need as a proportion of the bike’s total value will be high and therefore the amount the bike is likely to depreciate in a short amount of time is higher, meaning you’re more likely to be in negative equity for a longer period of time. It is this period of time where you’re at risk should your motorcycle be stolen and not recovered or written off and GAP can be a useful tool.

Also, unlike with cars, it doesn’t take that big an accident to cause your motorcycle to be written off. A dent in the frame, serious bodywork damage from a slide or a broken headlight and clocks from a slow speed frontal impact can render the bike a Cat C or Cat D write-off. If you have a £20,000 superbike, with £18,000 of finance, if it is written off within the first 12 months the insurance company might value the bike as low as £13,000, meaning you’ll have to find around £5000 to cover the shortfall. GAP insurance would cover this shortfall.

Do I have to take out the dealer’s GAP insurance?

The short answer is no. The dealer will be offering you GAP on your newly financed motorcycle as it’s an easy sell for them and they’ll earn commission. However if you shop around you’re highly likely to find a better deal.

A final word

If you do finance a motorcycle and it gets stolen or written off, without GAP insurance you may end up paying off a motorcycle you no longer have access to, which would be nothing short of a disaster. If your deposit is very small, GAP insurance can be a very good idea and usually the costs can be added to your monthly payments at only a few pounds a month – for some buyers, that’s peace of mind worth paying for.