Insurance Gap Analysis Calculator Formula
Understand the math behind the insurance gap analysis calculator. Each variable explained with a worked example.
Formulas Used
Life Insurance Gap
life_gap = max(income_need - current_life, 0)Property Coverage Gap
property_gap = max(total_assets - current_property, 0)Total Insurance Gap
total_gap = max(income_need - current_life, 0) + max(total_assets - current_property, 0)Overall Coverage Ratio
coverage_ratio = (income_need + total_assets) > 0 ? (current_life + current_property) / (income_need + total_assets) * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
total_assets | Total Assets at Risk(USD) | 600000 |
income_need | Income Protection Needed(USD) | 500000 |
current_life | Current Life Insurance(USD) | 250000 |
current_disability | Annual Disability Benefit(USD) | 30000 |
current_property | Current Property Coverage(USD) | 350000 |
How It Works
Insurance Gap Analysis
A gap analysis compares what you NEED versus what you HAVE.
Steps
1. Identify risks: Death, disability, property loss, liability 2. Quantify each risk: How much would each event cost? 3. Inventory current coverage: List all existing policies and limits 4. Calculate gaps: Need minus current coverage
Coverage Ratio
Coverage Ratio = Total Current Coverage / Total Coverage Needed x 100%
Aim for 100% or higher across all categories.
Worked Example
$600,000 assets, $500,000 income protection needed, $250,000 life insurance, $350,000 property coverage.
- 01Life insurance gap = $500,000 - $250,000 = $250,000
- 02Property gap = $600,000 - $350,000 = $250,000
- 03Total gap = $250,000 + $250,000 = $500,000
- 04Coverage ratio = ($250,000 + $350,000) / ($500,000 + $600,000) = 55%
Frequently Asked Questions
How often should I review my insurance?
Review annually and after major life events: marriage, home purchase, having children, job change, or significant salary increase. Gaps tend to grow as your life becomes more complex.
What is the most commonly overlooked insurance gap?
Disability insurance is the most overlooked coverage. Many people insure their home and car but fail to insure their most valuable asset -- their ability to earn income.
Can I have too much insurance?
Yes. Over-insurance wastes premium dollars. The goal is adequate coverage, not maximum coverage. If your coverage ratio is well above 100% in every category, you may be paying for protection you do not need.
Ready to run the numbers?
Open Insurance Gap Analysis Calculator