If a loss occurs, GAP insurance will pay the difference between the actual cash value of the vehicle and the current outstanding balance on your loan or lease. Gap Insurance protects your vehicle lease or loan. Sometimes it will also pay your regular insurance deductible.
If your vehicle has been totaled by accident, theft, fire, flood, tornado, vandalism, or hurricanes your insurance company typically pays the actual cash value. That may be less than its actual retail value. It is often considerably less than the actual amount you still owe on your loan or the amount due for a lease payoff.
The amount between your insurance deductible and the loss from this financial shortfall is the “gap” you can be left owing.
Now, do you think it is worth another $500 per year? Doesn't sound like it to me but I did not finance the entire amount of my bike.
When you get your bike insurance ask them how the determine the value in case of a total loss. My son totaled his 03 road king, he had Geico insurance, they checked at dealers for the same bike and added tax to the dealer price of that bike and that is what they paid him.
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.