The term coverage gap is one of those terms in the insurance industry that really does not have a classic definition. The term can be used to describe the gap between what you have a piece of property, like your home, covered for and what it would actually cost to replace said property.
It can be used to describe the shortfall of liability coverage for a business if they get sued.
It can indicate specific types of coverage that may be missing from an insurance program, like flood or earthquake coverage.
It also can refer to the amount of life insurance coverage a person actually has contrary what they say they need. Statistical studies indicate that the amount of coverage insured say they need and the amount of coverage they purchase are not the same.
A recent study by New York Life indicates that the average coverage gap is $ 320,000!
This varies by generation with the gap being the smallest for Baby Boomers. The Baby Boomers is the generation born from 1946-1964. This generation reports a shortfall of $ 260,000.
Generation Xers, born from 1965 to 1983, report that they think they need in excess of $ 750,000 in life insurance coverage and only purchase an average of $ 260,000, leaving a substantial coverage gap of $ 490,000. This generation seems to have been hit the hardest by the recent financial crisis. Their average coverage amount has fallen from $ 400,000 to $ 260,000 in recent years.
Oddly enough, the youngest generation currently in the work falls somewhere between the Xers and the Boomers. This generation was born between 1984 and 2003. They report an average coverage gap of $ 370,000.
This study is based on two separate surveys, one online and the other one a phone interview with over 1,000 respondents.
Overall the estimated coverage gap in life insurance today is $ 15.3 trillion dollars. That's a lot of money by any standards.
Most people when asked why they do not have enough life insurance say the reason is that they can not afford it.
The only way for families to close this coverage gap is buy additional coverage.
Having been in the insurance business for a number of years, I have seen a lot of changes in the way that life insurance is marketed and sold to the general public. When I first entered the business, most life insurance purchases were made across the kitchen table over a cup of coffee. This type of sales situation has gone the way of the rotary dial telephone. With technology and changing consumer behavior the way life insurance is purchased has changed dramatically.
In my mind, these startling statistics bring into question the way life insurance I bought and sold in today's social media world. There are ads for life insurance all over the airwaves and online sources from Facebook to LinkedIn and the old standbys or radio and television. Yet, the amount of coverage being sold does not seem to be keeping up with the potential demand. The coverage gap continues to widen. It makes one wonder if the old ways were better after all.
What is your coverage gap? Spending a little time figuring it out now could mean everything to your family later.