Why GAP Insurance is More Important Than Ever in 2025

 

In 2025, protecting your car with GAP insurance isn't just a nice-to-have. For many, it's an essential part of owning a vehicle.

 

Cars are more expensive, more complex, and depreciating faster than ever.

 

Add in the rising cost of living, a growing trend of insurers writing off cars for relatively minor damage, and average GAP Insurance claims rising to over £7,000, and it becomes clear why GAP insurance is a valuable financial safety net for drivers across the UK.

 

Here, we will review some key factors and provide details on the trends we see among our GAP Insurance policy holders. 

 

But as a quick reminder:

GAP Insurance bridges the difference between the current market value (your car insurance settlement) for the vehicle and, depending on which type of GAP Insurance you have, the original purchase price, the equivalent replacement cost or the settlement on a lease.

Consumers buy GAP insurance as an extra level of financial protection. It is designed to add to the settlement from your comprehensive car insurance should the vehicle be written off or stolen.

 

Vehicles Are Depreciating Faster – Especially EVs

 

Brand new car buyers have often had to accept the dreaded 'd' word as part of being the first owner of a car. Depreciation starts from the very first moment you drive away from the forecourt.

 

Depreciation also shapes the used car market, but that trend has accelerated, particularly with electric vehicles.

 

A report by Motorway revealed that some EVs are losing up to 60% of their value in three years, at 10,000 miles a year. This may be driven by rapid technological improvements and an oversupply of models in the used market.

 

Essentially, new EVs are evolving so quickly that their advanced technology and extra range are making older EVs much less desirable. Also, the used car market is being flooded with ex-lease EVs, diluting their value.

 

But it's not just EVs. WhatCar provided a list of the highest-depreciating cars in 2025. They include a mixture of electric and traditional combustion-engined cars. Some retain less than 30% of their value after three years.

 

With depreciation like that, the payout you'd receive from your motor insurer after a total loss could fall thousands short of what you originally paid, what it may cost to replace or what you still owe on a finance agreement.

 

 

Cars Are More Likely to Be Written Off

 

It might surprise people, but the threshold for writing off a vehicle is lower than many expect. Insurers assess whether the repair cost exceeds a certain percentage of the vehicle's market value, typically between 50% and 70%. Modern cars, particularly those packed with sensors and technology, are increasingly expensive to repair.

 

A cracked bumper or damaged wheel arch might once have been a straightforward fix. If that area contains embedded radar, cameras, or ADAS modules, repair bills can easily spiral. Add in the cost of labour and parts, and it's no wonder insurers often take the path of least resistance and declare the car a total loss (Source: Motorway.co.uk).

 

The problem can be worse with EVS. Even relatively minor accidents can affect the battery pack, which can be prohibitively expensive to inspect or replace. The Financial Times has reported that some EVs are being written off due to concerns over battery integrity despite damage appearing superficial.

 

Remember there are additional charges, on top of the repair costs, that can come into the insurer's mind when assessing a write-off. For example, the cost of putting someone on a hire car whilst the car is being repaired can be substantial.

 

An insurer often decides whether to write off a vehicle quickly rather than see costs escalate. Of course, you can have little influence on this decision either. It is not all about the vehicle value.

 

The Economic Climate Makes the Risk Heavier

 

In today's economy, a car write-off could damage someone's finances. The cost-of-living crisis continues to stretch household budgets, and a surprise shortfall of several thousand pounds isn't something most drivers can absorb. With inflation still impacting essentials and wage growth lagging behind, few can afford to lose out financially on a vehicle they've only just bought or still owe money on.

 

The reliance on finance and PCP deals makes matters worse. A growing number of drivers now pay for cars over several years, with little or no equity for the first half of the agreement. If the vehicle is written off early in the term, the outstanding finance could be much higher than the insurer's settlement. The result? You're left paying off a car you no longer have.

 

GAP insurance covers the gap between the insurance payout and the remaining finance or original invoice. In 2025, with cars potentially more likely to be written off and their values dropping faster than before, that gap has grown wider.

 

GAP Insurance: A Quick Refresher  

 

GAP stands for Guaranteed Asset Protection. There are several different types of GAP Insurance cover:

• Return to Invoice GAP Insurance (RTI): This covers the difference between the insurer's payout and what you originally paid for the car.
• Vehicle Replacement GAP Insurance (VRI): This covers the cost of replacing your car with a new equivalent model.
• Lease GAP Insurance (AKA Contract Hire GAP): This covers a shortfall between the payout and the outstanding lease settlement on the vehicle.

 

All types offer the same basic benefit: if your car is written off or stolen, they top up your motor insurer's market value settlement so you don't end up out of pocket.

 

Why 2025 Is a Tipping Point for GAP Insurance

 

Several trends are converging to make GAP insurance more important than ever:

 

1. More Expensive Cars: The average price of a new car in the UK now exceeds £36,000 (our average car on cover is over £40,000). Even small hatchbacks are packed with tech and command a premium. The higher the initial cost, the greater the potential gap if it's written off.

 

2. EV Market Volatility: Electric vehicles are no longer niche, but their values are hard to predict. The speed of innovation and government incentive changes mean their residual values can swing dramatically.

 

3. Cost of Repairs: ADAS, sensors, and advanced safety systems make even minor damage expensive to fix. Repairs that used to cost hundreds now run into thousands, pushing insurers toward write-offs.

 

4. Strained Household Finances: Drivers can less absorb surprise costs in the current economic climate. GAP insurance offers certainty and protection at a time when many households are stretched.

 

5. More Finance Deals: With nearly 90% of new car purchases now made via finance agreements, the number of drivers at risk of negative equity after a write-off has never been higher.

 

Real-Life Scenarios

 

Let's look at an example by way of a recent claim.  

 

Our customer bought an ex-demonstrator Lexus NX450h for £49,700 in January 2025.

 

The customer became our policyholder by purchasing a Combined Invoice and Replacement GAP Insurance (VRI or Vehicle Replacement cover) from us for 3 years.

 

In March 2025, the vehicle was written off, and a total loss was declared.

 

The GAP Insurance settlement saw a settlement paid, including any motor insurance excess charged, of £6555.33.

 

Key Takeaways from this claim

• Even though the policyholder had the policy for a little more than two months, they received a settlement of nearly 14% of their purchase price.
• Although the car was not brand new, it was an ex-demonstrator vehicle, so it was already significantly cheaper than the RRP for the equivalent brand-new model (list price £56,700).
• GAP Insurance can benefit policyholders at any point of the term, but claims will naturally get bigger as the car depreciates more.

 

Who Should Consider GAP Insurance?

 

Not everyone needs GAP insurance, but it makes sense in several situations:

• You bought a brand new or used vehicle in the last 180 days and want to protect its original value, replacement cost, or lease settlement.
• You financed your vehicle and could owe more than the car's worth.
• You drive an EV, particularly one with a higher rate of depreciation.
• If your car was written off and your insurer's payout was insufficient to replace it, you'd struggle financially.

 

Many GAP policies are available for up to 5 years and are often cheaper when bought independently rather than through dealerships.

 

Final Thoughts

 

The world has changed quickly in the last few years, post-COVID. Cars are smarter and more expensive, but they are also more financially fragile in some ways. A minor bump could now mean a total loss.

 

Electric cars are here to stay, but their values are still finding their footing. And with millions relying on finance, the risk of owing more than your car is worth has never been higher.

 

It is generally true that cars lose value. Your motor insurance policy may only provide for settlement of the current market value of your vehicle if it is written off or stolen. This can create a financial shortfall on a lease or what you may need to replace the vehicle.

 

GAP insurance extra financial security at your time of need. In 2025, it's increasingly becoming a sensible way to protect yourself from a real financial shock. If you rely on your car for work, family, or day-to-day life, and couldn't afford to take the hit after a write-off, it's worth considering.

 

Is GAP Insurance worth it in 2025? We think there are many reasons that it can provide peace of mind for car owners. Purchasing GAP Insurance for a brand new or used car makes as much sense now as it did when we first started selling the product in 2010 in the UK.

 

 

 

FAQs for GAP Insurance in 2025

 

Are GAP Insurance claims going up?

Yes, we have seen an average GAP Insurance claim value of £5,496.78 from the beginning of 2019 to the end of 2024, with all data available.

However, in the single year of 2024 alone, the average GAP Insurance claim we saw was £7,216.26.

Data is taken across all brands operated by our company, Aequitas Automotive Ltd, which has provided this type of insurance to the UK public since 2010.

 

Why is there an increase in GAP Insurance claim value?

It is well-documented that car values remained resolutely high during and after the COVID-19 pandemic. In the last couple of years, we have seen a market realignment, with some rapid depreciation across some sectors of the market.

Therefore, it would make sense that if vehicles depreciate more, then GAP Insurance claims may be higher. Our data bears that out.

Will it last? Our overall data from 2019 suggests it may balance out over time. Time will tell.

 

The overall volume of GAP Insurance claims

If we compare the latest claims figures with previous years, the total number of claims is broadly in line with what we have seen before in 'normal' years. As you may expect, the only years that saw a dip were the Covid pandemic years.

Pre and post-pandemic years look pretty similar in terms of claims volumes.

 

Where can you buy GAP Insurance in 2025?

This is an excellent question. Following the Financial Conduct Authority intervention in 2024, the choice of where to buy a GAP Insurance policy has diminished somewhat.

Where GAP Insurance was available on most motor dealers and a range of online brokers, there is no doubt that GAP Insurance can be much harder to source now, particularly in niche areas like motorbikes, taxis and driving schools. The variety of GAP Insurance products available has also decreased.

Many motor dealers and some specialist brokers have stopped selling GAP Insurance entirely.

There is still a market for the product; you may just find that your choices are more restricted at the current time.

 

Have GAP Insurance premiums risen in 2025?   

Yes, it is fair to say that premiums have seen an increase, and sharply in some cases, in the GAP Insurance market in the last year. While car dealers and online brokers face strict commission limits following the FCA intervention, some insurers have also increased GAP Insurance rates.

Some insurers cite worries over vehicle depreciation as the reason for the increase. Indeed, our average GAP Insurance claim has been higher over the last year (as we discussed earlier). However, less competition following the FCA intervention may also have impacted the price that the consumer ultimately pays.

It is hoped that if more providers and insurers re-enter the market and there is a returning equilibrium with car prices, consumers may see GAP Insurance premiums begin to fall again.

 

What may influence the price of GAP Insurance cover in 2025?

As we have highlighted already, competition, claims volumes and values, and insurer rates will be the main driving forces for the cost of GAP Insurance for new and used cars, motorbikes, and vans.

What else may influence the price of your premium?

Insurance premium tax is the amount you pay for buying insurance in the first place. This is included in the premium you pay. Currently, the standard rate of IPT is 12%, and you will pay this on a range of insurance products like standard car insurance, home insurance and GAP Insurance.

IPT is predicted to raise around £9 billion for the UK in 2025.

With the current strain on the public purse, the Government could increase IPT to increase revenue. This could, in turn, raise insurance premiums, including GAP Insurance.

Car prices rise - rising car purchase prices can push up the price of GAP Insurance cover because GAP is priced on the value of the vehicle you buy. So, the more the car costs, the more you pay for GAP cover, potentially.

There is a caveat to this. GAP Insurance premiums are calculated in price bandings. For example, you may buy a car between £20,000 and £25,000 with the same premium. However, if you buy a car at £25,500, the premium could be higher.

Therefore, if the average car price increases, the price you pay for your GAP coverage could increase, too.

 

So there you have it, our views on the value of GAP Insurance, trends and influences you may want to consider if you are getting a new car in 2025.

 

Written by Mark Griffiths, published 24th May 2025

 

Sources :

Motorway - Car depreciation guide

WhatCar - Highest depreciating cars of 2025