Clear Explanation of Insurance Gaps: The Essential Guide to Understanding Life Insurance

insurance gap

When buying life insurance, it’s important to understand what you are and aren’t covered for. Life insurance can be a great way to financially protect your family and provide security in the event of your death. Each life insurance policy will have different coverage and exclusions, so you need to make sure that you know exactly what is and isn’t covered by your life insurance policy.

There are many potential insurance gaps in life insurance protection that you need to understand if you want to get the right type of coverage. If these don’t suit your needs, there are plenty of other providers out there for you. Here we will go through some of the main gaps in life insurance protection that people should be aware of when getting their policy:

What is Life Insurance Coverage Gap?

The definition most cited for the life insurance gap is the difference between economic losses and insured losses. However, this definition is much better suited to property losses after a natural catastrophe. How does one calculate the economic loss of a breadwinner or the amount of money that should be saved for retirement?

For life insurance, a better definition of the insurance gap might be the amount of protection needed to maintain one’s standard of living after a life event (death, disability or retirement) for a certain period. In this case, the word “protection” may mean the present value during that period.

How Do insurance gaps happen?

Allowing a policy to lapse, expire, or simply wait for coverage to go into force can all create an insurance gap. Here’s what you should look out for, and how you can prevent gaps from happening.

Policy lapse

Insurers can cancel your policy if you don’t pay your premiums on time. There’s usually a 30-day grace period for late premium payments. You’ll lose coverage if you don’t pay during the grace period.

How to prevent it: Talk to your insurer

If you can’t pay your premiums on time, talk to your insurer to see if they have any additional options, like payment plans or extended grace periods, for extenuating circumstances.

If you can no longer afford your premiums, you can lower your death benefit to lower your premiums. Know that if you need to increase the benefit later, you’ll need to go through underwriting again.

Policy Expiration

If you purchase a term life insurance policy that doesn’t last as long as your need, you buy a 10-year policy but have a 20-year mortgage, for example, you’re going to experience an insurance gap unless you replace your coverage in time.

How to prevent it: Get new coverage six months before your policy expires

If your policy is going to pass soon and you still need life insurance coverage after its end date, there are two ways to ensure that you don’t experience an insurance gap:

  • Shop for a new policy at least six months before your current policy expires
  • Use a term conversion rider to convert your term policy into a permanent life insurance policy

Term life insurance is more affordable than permanent life insurance, but it may be worth considering a permanent policy if you’re older or have a complex health history. Insurers might charge much higher rates or may not be willing to offer you a new term policy. Give yourself time to work with an agent to explore your options.

Delay in policy approval

The life insurance application process can take five to six weeks, sometimes longer if an insurer needs more information to make you a policy offer. That can leave an insurance gap between when you start the process and your policy’s start date.

Even if you’ve received the final policy offer from your insurer, your family won’t get the death benefit if you die without signing your policy papers and paying your first premium.

How to prevent it: Get temporary coverage before you get your actual policy

When you apply for your policy, ask your provider about temporary life insurance coverage. It’s a limited policy offered by your insurer that pays a death benefit if you die before your policy is finalized.

Each life insurance company treats temporary coverage differently and offers a different maximum death benefit.

Common myths that lead to an insurance gap

When you’re setting up a financial plan for your family, you might come across a few life insurance myths that can lead you to create a coverage gap for yourself. Here are a few of the most common misconceptions that leave people underinsured:

“I don’t need life insurance”

Most people know that life insurance can cover end-of-life costs, such as funeral expenses, and assume they can cover the costs themselves or put off buying a policy. But life insurance is also meant to replace your income so that your loved ones can afford everyday essentials, mortgage payments, and college tuition.

If anyone relies on your financial support or would become responsible for your debts after you die, you should have a policy that can cover your loved ones’ needs.

“I already have enough life insurance”

If you split a mortgage or any other expenses with your partner, unexpected death can strain your finances, even if your employer offers life insurance benefits or you both earn an income.

Your partner may have to work more, dig into savings, or pay for childcare to make ends meet. Meanwhile, employer-sponsored life insurance policies rarely offer the number of coverage people need.

Consequences of a coverage gap

It’s essential to avoid a life insurance coverage gap for two key reasons: Gaps can put your family’s financial support at risk or cause you to pay more for life insurance than you need to.

Your family wouldn’t get the death benefit

If your policy expires and you die the next day, your family won’t get your policy’s death benefit. No matter how little time has elapsed since your coverage gap began, life insurance companies aren’t obligated to pay out if a policy isn’t active when you die.

You could become ineligible for a new policy

You could face much higher premiums if you face a coverage gap because your policy has lapsed or expired. If your health has worsened since you bought your last policy, it can impact the health classification that an insurer gives you, which means higher premiums, or make you ineligible for life insurance altogether.

Preventing a coverage gap not only protects the financial future of your loved ones but also keeps you from paying more for life insurance than you have to.


Life insurance is a great way to protect those you care about most. To get the most out of your policy, it’s important to understand what you are and aren’t being protected for. When buying life insurance, it’s important to understand what you are and aren’t being protected for. There are many potential gaps in life insurance protection that you need to understand if you want to get the right type of coverage.

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