How is the protection gap formula calculated?

The protection gap formula is calculated by determining the difference between the total resources needed to protect against potential financial risks and the existing coverage that a person or entity already has in place. This calculation is essential for identifying any gaps in coverage that may leave an individual or family financially vulnerable in the event of unforeseen circumstances, such as death, disability, or other significant life events.

In this context, the resources needed refer to the total amount of money that would be required to maintain a certain standard of living or to cover anticipated expenses, while the cover already in place represents the protection afforded by existing insurance policies or other financial arrangements. By subtracting the existing cover from the resources needed, one can arrive at a clear understanding of the adequacy of current financial protection measures and highlight any shortfalls that may need to be addressed through additional insurance or savings.