5 people who need life cover

Life insurance isn't for everyone. Find out which people and which domestic animals should have life insurance.

If you have people who depend on you, you should consider life insurance, which will give your dependants a pot of money in the event that you die prematurely. The typical cost of life insurance is currently so cheap that insurers only make a profit by investing the premiums. Before the rewards of investing our premiums is taken into account, insurers are losing money on life insurance. Read Buy life insurance while it's still cheap for typical costs.

The life insurance industry frequently claims there is a massive shortfall of life insurance that's going to end in tragedy. There is certainly a shortfall, but the figures insurers bandy around can be as high as £2 trillion-£3 trillion. According to these companies, everyone and their cats need to have their lives covered and we're risking serious woe if Mr Tiddles is underinsured.

However, life insurance isn't for everyone – and it’s far too cool for cats. Here are five examples of people whom life insurance actually is suitable for:

Homeowners

Life insurance might be suitable if you are a homeowner. You can buy life insurance that will pay off your mortgage if you die prematurely. However, you don't simply want to buy life insurance to reward your mortgage lender. You should only buy life insurance in this case if it will benefit your dependants, such as co-inhabitants: your spouse and children, for example.

Anyone with joint debts

Similarly, if you have joint debts (like a joint mortgage or a joint loan) you might want to have enough life insurance to pay off those debts.

You could theoretically take out life insurance to pay off non-joint debts. Some people do this to ensure all their debts are paid when they die. However, non-joint debts aren't the responsibility of your spouse, partner or relative. If you make clear who the beneficiaries are on your life insurance, it will go straight to the beneficiary without having to pay off your individual debts. Be careful though: if you don’t make it clear who your beneficiaries are, the payout from the life insurance company will usually automatically go to your estate, which will then pay off your individual debts.

Parents

If you have children, it makes sense to protect them in the event of the death of one or both of the parents. To put it bluntly, if the main income earner dies, you will need funds to replace that income. If one of you is pregnant, the other should consider life insurance for the same reasons.

It's not just the main breadwinner you need to consider buying life insurance for; if a stay-at-home mum or dad dies, you may need funds to replace their contribution to the household as a nanny/chauffeur/housekeeper/gardener/all-round superhero. Perhaps he or she also provides a second income that is valuable for your household, so that might also need replacing.

Couples

Couples need only buy life insurance if there is a dependency. If both have full-time jobs and they have no children it is likely that life insurance isn't required. However, if one is unemployed and relies on the other you should consider life insurance. Also, if you get used to a level of lifestyle due to the higher income of one partner, or due to the combined incomes of both, some couples may want to protect that lifestyle with life insurance.

Single people with no dependants, in contrast, rarely need life insurance. If you have no savings, you might consider a very small amount of life insurance to cover funeral costs for your family, but that's about it.

Unpaid carers

If you care for a family member or friend who is sick or disabled, you may want to take out life insurance. You'll want enough life insurance to replace you with paid-for care. If you provide additional financial support you might want to replace that with life insurance too.

Make sure you buy the most appropriate insurances only

Whether or not life insurance is suitable for you, there's a good chance that permanent health insurance is. That insurance will protect not just dependants but also yourself, as it'll replace part of your income when you're unable to work due to illness or injury. Don't confuse it with life insurance, or health insurance, which gives private medical care.

Finally, have a read of Three essential ways to protect your family to find out about more options to protect your family, including family income benefit. This well worth considering if you’d prefer your family to have an annual income rather than a lump sum payout.

More: Watch out if you want to retire at 65 | Get cash for switching your energy tariff

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