Without knowing who the under-writer is, I can only say that if he's selling that Gap policy for $500 and he pays $480 for it, you're getting a heckuva deal. Nobody's getting rich on a 4% margin, so it's more of a favour to you as his customer. Dealerships sell Gap, extra warranty and such to increase profitability, that's called good business practice. Bike sales used to return about 15% gross margins, now it's typically less than 10%, so it's far from lucrative. In comparison, your local Safeway averages about 18% and the Home Depot's of the world work on a tad over 20% gross on their total operations. That's not "net" by the way either. Most retail stores will run in the 2% net profit range, I know because I've been a retailer most all my life and ran my own supermarket for 27 years.
As for the Gap insurance, your taking a big risk if you don't purchase it and you finance your total purchase. It takes about 18 months for depreciation to exceed your net value of your bike if you finance the whole thing, so if you suffer a loss, you'll go negative $$ in a hurry.