What is a life insurance gap? And how can you close that gap?

Question

What is a life insurance gap? And how can you close that gap?

Answer 1

The life insurance gap is the difference between your current coverage and the coverage that you need to fulfill your goals.

First you have to determine how much insurance do you need. This is based on current debts (mortgage, ccs, business loans, etc). After that you will have to figure out how much income does your family will need and for how many years.

From that amount of money, substract your current insurance benefit, and that will be your gap.

Answer 2

The life insurance gap is the difference between the amount of life insurance you currently have and what you should have to fully protect your familiy in the event of loss of a loved one (bread winner).  

Now, this is not a necessarily straigtforward number!  You should take into account  a lot of different factors.  The bottom line you need to know is what is important to your family and does this fit into your overall financial plan?

Questions to ask-

1) Are you in a single or dual income household?

2) What is the current/future earnings power of each income earner?

3) Do you have dependent children and what are your current/ future expenses for each child (i.e. educational, care etc.)?

4)  Do you have a mortgage(s) which may need to be paid off?

5) What other debts do you have?

You can use the sum total of these numbers to give you a basic idea of the amount of insurance you would need.

You should always factor the cost of the life insurance with you overall financial plan.

In addition, you can use term life insurance and some type of permanent life insurance (i.e. Whole Life Insurance, Variable Universal Life Insurance, Non-Variable Universal Life Insurance) to meet your needs.  

You can use one or the other or some combination of both.

Make sure you Life Insurance Agent; provides you with an insurance plan which fits your personal situation and not some canned plan like "Buy Term Only" or "Buy Whole Life Only".

Many of the financial websites have life insurance calculators, and projected educational costs calculators to assist in determining a number for you.

Answer 3

THe gap is some way an insurance salesperson says you're underinsured.  You close that gap, by buying whatever they are selling.

Not a good way to shop.

Best thing to do, is FIRST establish the goal, THEN select the product.