Personal finance: How to bridge insurance gap

For the vast majority of us, all of the above can be paid for using borrowed credit of some description, such as mortgage or a personal loan. But what if we are unable to pay back the money we have borrowed, perhaps due to the loss of a job, serious ill health or death? In short, the so-called insurance gap is the difference between what we owe and how much we can afford to pay back in such circumstances.

How do I identify my own gap?

Identify any loans or other credit facility that you have and add them together to determine the “grand total” Think about your typical monthly outlay – including your mortgage, food costs and household bills – and also the costs you may incur if the worst was to happen (such as funeral costs and financial support for loved ones). Now break them down into “lump sum” and ongoing costs and determine which would become payable under the following circumstances: loss of income, death or other. Some costs may overlap. For example, a mortgage would still be payable should you be unable to work, and should you die unexpectedly, you will need to pay off the mortgage or risk the family losing their home.

Plugging the gap

The gap is the difference between liabilities and cover in place, so you may not have a gap if adequate insurance is already in place. Check if you have existing cover – insurance might be included in your mortgage deal, while there’s a good chance your have life insurance through your employer. Many employers will also agree to pay all or part of your salary for a set period should you be unfit to work due to ill health. Check what is covered and the options available in all of the above instances. There is no point paying for the same cover twice

Get covered

If, after a review of your current situation, you still believe you have a need, you can do two things. Firstly, you can pretty much find any type of insurance online, it’s down to you to find the right cover, at the right price, with the right company. Alternatively, you could refer to a financial adviser who will not only help you find the right cover, but can also help you identify any shortfall.

l Giles Robinson is a financial planner at Melville Independent