I just use my standard annual policy for holidays where I book flights and accommodation separately, etc.. I don't know of any reason why I shouldn't and I don't see that there's any more risk with the way you're booking compared to a package.

If you've booked, the main thing is that you have your insurance at the time of booking (or asap afterwards). If you've booked and then hang around to be go get your insurance, what happens if the company goes bust in between booking and buying insurance, or if you have to cancel for medical reasons, for instance?

I got my renewal letter from M&S and it mentions they have extended cover for DIY travellers to include failure of the accomodation provider. Not sure of the details as I haven't renewed it yet (outstanding decorating taking precedence over hols at the moment!!). If the combination of things you've booked gets you full ABTA or ATOL bonding it isn't really a problem but might be useful but where bonding doesn't apply it could be useful.

If the holiday you've booked is on a standard charter flight and the price you were quoted included the flight and accommodation you will be atol protected. If the flight is scheduled or a low cost/budget/no frills flight these are not usually covered by an atol.

Normal insurance should be ok with a standard package but they do not normally cover scheduled airline failure and accommodation supplier failure. In this instance it would be down to the atol or abta bond where applicable.

The DIY cover is great if you are travelling scheduled and building your own holiday e.g. 2 or more flights or flight plus coach or train.
Standard cover only covers for delays from the UK point of departure. You would not be covered for missed connecting public transport. It also covers for many other things that you wouldn't need for a normal package holiday.

I was checking prices on travel republic earlier and it was interesting to see that there is a statement saying that even if you book two components of a holiday with them, such as a flight and accommodation you are not booking a package holiday.

Perhaps they had problems last year with the XL collapse and they now feel it necessary to ovetly state this.
Ive forgotten the exact wording, but they tried to express it in a way that implied they were doing you a favor by not selling you a package holiday lol as you got a huge amount more flexibility, on dates, choice of flight etc, which I guess is true to a certain extent.

I think that's because they don't have an ATOL. If they had they could package holidays and would still be able to give all the flexiibility and choice that they are offering at present.