The Financial Gap — What It Is and How to Calculate It

The financial gap — what exactly is it?

Picture a simple situation: tomorrow your income disappears. Not for a week, not for a month — permanently. Would your family cope financially? The rent or the mortgage payment doesn't go away. The shopping, the nursery fees, clothes for the children, the bills — it all stays. The only thing that disappears is the money that landed in the account each month thanks to you.

The financial gap is exactly that hole in the budget. To put it precisely: it is the difference between how much money your family would realistically need to maintain its current standard of living and what it already has — savings, assets and the payouts from any policies you hold. If that difference is positive, you have a gap: the missing amount your loved ones would have to find somewhere.

At the Institute we approach this the way a doctor approaches a patient. First we make a diagnosis — we calculate the financial gap, showing where the problem lies and how big it is. Only then does it make sense to talk about the prescription, namely how to close that gap. Without a diagnosis, every decision about insurance or saving is shooting in the dark.

How to calculate the financial gap — the formula worth knowing

The good news: you don't need an economics degree for this. The logic of the financial gap is surprisingly simple and rests on a single question — how much money would have to reach your family for nothing to collapse over the next few years if your income were no longer there.

The whole calculation can be written as a single formula:

• Income protection = monthly income × 12 × the number of years you want to protect (e.g. until the children become independent).
• Plus liabilities = the outstanding mortgage, personal loans, leasing agreements and other debts.
• Plus a buffer for the children = money for education, university and a start in adult life.
• Minus what you already have = savings, investments and the payouts from policies you already hold.
• Result = your financial gap, the amount you are truly missing.

A worked example: a young family, real numbers

Theory is one thing, but numbers speak louder. Take Kasia and Marek — both in their thirties, two small children, a home bought on a mortgage. Marek earns 8,000 PLN a month and it is mainly his income that supports the family. They want to protect their home financially for 15 years — long enough for the youngest child to grow up.

Let's do the maths: income protection comes to 8,000 PLN × 12 months × 15 years = 1,440,000 PLN. On top of that is the outstanding mortgage — let's say 350,000 PLN. They add a buffer for the education of two children: 100,000 PLN. Altogether the need comes to 1,890,000 PLN.

Now we subtract what they already have: 50,000 PLN in savings and Marek's workplace policy worth 100,000 PLN, so 150,000 PLN in total. The financial gap therefore comes to 1,890,000 − 150,000 = 1,740,000 PLN. That's no mistake — almost 1.8 million złoty stand between this family and full security. And the workplace policy covers a mere few percent of the real need.

Why most people badly underestimate their gap

If you had asked Marek before this calculation how much life insurance he would need, he would probably have thrown out a figure somewhere around 100,000–200,000 PLN. And that is typical. Most of us look at a single month rather than the sum of the years. Yet the hole in the budget doesn't appear once — it repeats every month, for many years.

On top of that come several thinking traps. We confuse holding any policy at all with being well protected, even though a group policy from work usually carries a symbolic sum. We forget about the mortgage, which after we are gone falls onto our partner's shoulders. We overlook inflation and the cost of the children's education, which rises faster than salaries. The upshot? The financial gap is in reality several — sometimes many — times larger than we instinctively assume.

That's why it pays to stop guessing and see your number properly, once and for all. The quickest way to do this is with the financial gap calculator on our website — you enter your income, your liabilities and what you already have, and within a dozen or so seconds you get a concrete result. No login, no letting anyone into your home, no obligations.

The financial gap and your life insurance cover

Why bother calculating the gap at all? Because it — not a hunch — should determine your life insurance cover. The cover amount is the sum an insurer pays out to your loved ones, and its job is precisely to close the financial gap. Too low a sum is a false sense of security; too high a one means overpaying for protection you don't need.

In Kasia and Marek's example, a sensible cover amount should match the gap — the real need minus what they already have. Only then does the policy do what it is meant to do: it lets the family pay off the mortgage, keep the home and calmly rebuild their lives, instead of having to fight for money at the hardest moment.

And here we return to our principle: education over sales. First you need to understand your own diagnosis. That is why, alongside the calculator, we have prepared a free Family Security File — a PDF with a checklist, 16 questions worth asking an adviser, and a list of the documents worth keeping in one place. It's your starting point, before you even begin to think about any offer.

What to do once you know your financial gap?

Calculating the gap is only the diagnosis. The next step is calmly understanding what that number means for you and how to actually close it — sometimes partly with savings, sometimes with a policy, most often with a sensible combination of both. This is where the prescription begins, but a good prescription is always tailored to your specific situation, not copied from an advert.

If you'd like to talk your result through with someone who isn't trying to sell you anything, leave your details for a free 15-minute consultation. Our expert will help you interpret the number from the calculator, explain what to look out for in policies (what the cover depends on, what the exclusions are, what's hidden in the terms of the contract) and suggest the questions to ask before you sign anything. The decision is always yours — we simply give you the knowledge to make it an informed one.