We motorcyclists are a different breed. For most of us our motorcycles are more than a mode of transportation; they are literally an extension of us. Over time we modify and customize our bikes to make them unique. When a negligent driver damages or destroys our bike they have not just damaged or destroyed a vehicle, they have damaged or destroyed part of us. Our bikes can have value to us that are beyond market forces. That value can come from the rides we have taken on them, how long they have been in the family, or any number of things.
However, to an insurance company, a defendant or a court, your motorcycle is only worth what the market says it is worth. If your motorcycle is totaled, the insurance company is required to pay you only the fair market value of your bike regardless of how much you owe on it or how much you think it is worth.
Fair market value is the amount that the motorcycle would sell for on the open market. This should not to be confused with what you would ask for if you were to sell it. It should also not be confused with what you owe on it or what you have invested in it. These things are unimportant and often irrelevant in determining what your bike is worth.
The insurance companies will often look to the NADA guide to gauge the value of your motorcycle. They will also look to see what similar motorcycles are selling for in your geographic area. I often get complaints that the insurance company is not taking into consideration aftermarket items such as additional chrome in computing the value of a client’s motorcycle. While extras and modifications can increase the value of a motorcycle, fair market value is not computed by taking what you paid for the bike and adding up all that you have invested in it. If you add $2,000 worth of chrome to your bike that does not necessarily mean the bike is worth $2,000 more than before you added it. The question is how much will it cost a buyer to go out and purchase another bike like it. The answer to that question is usually less than the owner thinks. Try going on Craigslist or eBay and seeing how much bikes like yours are selling for. That is why I tell clients that if you want to put chrome on your motorcycle, do it because you like chrome, not because you want to add value to your bike.
So what can you do to protect your bike? First and foremost, if you are financing your motorcycle consider gap insurance. Gap insurance pays the difference of what the motorcycle is worth, and what you owe. It keeps you from being “upside down” on your loan if your bike is totaled. By way of example, let’s say that you buy a bike for $15,000. Two years down the road you owe $13,500 but the fair market value is now $11,000. If you are in an accident and your bike is totaled, the insurance company is going to pay you $11,000. That takes care of the defendant’s obligations with regard to your bike. You will still owe $2,500 on a motorcycle that you do not own. Trust me; those are painful payments to make. However, if you bought gap insurance it would make up that $2,500 difference so that you would not owe further on the bike.
You can also insure your motorcycle for a certain amount, often called scheduled or stated value. If you do that and your bike is totaled, the insurance company will pay that pre-set amount. Take that $15,000 bike that you bought in the previous scenario. You schedule the bike at $15,000. The same two years go by and it is worth $11,000. If you are in an accident and your bike is totaled the insurance company will pay you $15,000. If you do not want to pay for a scheduled or stated value, many policies will offer specific protection for accessories, which guarantees that you will receive value for your accessories. It does not protect you from the natural depreciation in value that all bikes experience over time. If you do purchase coverage for accessories, make sure to save the receipts for any accessories that you purchase.
The bottom line is that the vast majority of us are riding with what is called an “actual cash value” policy (ACV). If our motorcycle is totaled we will get the actual cash value of that motorcycle. If you, as many of us do, see your motorcycle as something that you have a personal investment in and you want to protect that investment, then you need to make sure that you purchase more than just an ACV policy. Otherwise, your investment is at mercy of the free market, and the free market will almost always determine that your motorcycle is worth less than what you think it is.
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If you have any further questions or comments concerning this article or any other matters concerning your rights as a motorcyclist, please feel free to contact me at 1-800-321-8968 or at firstname.lastname@example.org
McGrath & Danielson
Tom McGrath’s Motorcycle Law Group