The most important reason to take out life insurance

If you're in this situation, make sure you have life insurance in place.

The words ‘life insurance’ probably don’t fill you with excitement. And I can’t really blame you for that. However, if there are people in your life who depend on you financially, these two words are very important indeed.

Imagine what would happen if you were no longer around to bring in an income or look after your children. Would your family be able to cope financially? Would your partner manage to keep up with all the mortgage repayments?

If the answer is no, and you care about your family's well-being, then having a life insurance policy in place is vital. Without one, your family could lose their home at the worst possible moment imaginable.

Yet despite this reality, recent research from Sainsbury’s Life Insurance has revealed that nearly one in two mortgage holders in Britain don’t have their mortgage contributions covered by life insurance. In fact, the findings suggest there are over 7.1 million people with a collective outstanding mortgage balance of £318 billion who have no life insurance to cover this.

Sadly, with many of us tightening the purse strings, paying for life insurance is being put on the back burner. But if you choose to do this, you are not merely burying your head in the sand or coyly refusing to face up to your own mortality - you are selfishly putting your loved ones (and the home they live in) at risk. Is a little bit extra in the bank each month really worth taking that risk for?

Youngest are worst

Of course, not everyone needs life insurance. Perhaps unsurprisingly, the Sainsbury’s research revealed that young mortgage holders (18-24 year olds) are the least likely to have life insurance (62% of them don't). This makes perfect sense, because at that age you're unlikely to have to support anyone financially, such as a child or a partner.

However, 44% of 25-34 year olds also don’t have life insurance, 32% of 35-44 year olds are also unprotected, and 34% of 45-54 year olds have no cover. These are pretty significant numbers of people who are likely to have a loved one who depends on them financially in one way or another.

If you're concerned about how much life insurance will cost you, the good news is, it really doesn’t have to be expensive, particularly if you shop around. And you can easily do that with the lovemoney.com life insurance comparison service.

So let’s take a look at some of the monthly premiums on offer for different age groups and for decreasing term assurance. This type of policy is cheaper because the cover reduces over the term in line with your outstanding mortgage debt. This type of policy will always pay out just enough cash to cover the outstanding mortgage whenever you make the claim.

All premiums are based on a non-smoker.

Best deals for a 20 year old

Premiums as at 8 November 2010

Best deals for a 30 year old

Premiums as at 8 November 2010

Best deals for a 40 year old

Premiums as at 8 November 2010

Best deals for a 50 year old

Premiums as at 8 November 2010

Different costs

So, as you can see, life insurance premiums can start from as little as £5 a month. This is a bargain price to pay for something that will ensure your family can stay in their own home if something happened to you.

And of course, the advantage of taking out a policy when you're younger is that your premiums will be lower. The simple reason for this is that a claim is more likely to be made under the policy if you’re older because your health is likely to be worse.

If you’re age 20 and you took out a 25-year policy, for example, there’s a good chance you will survive until the end of the policy at the age of 50. But if you’re age 50 and you take out a 25-year policy, although your chances of surviving until the end of the policy are still good, they are lower. So the sooner you take out a policy, the cheaper it will be.

That said, it’s worth bearing in mind that if you’re taking out a policy when you’re older, you may not require your policy to run for as long as 25 years and your outstanding mortgage debt is also likely to be lower - in which case, your total premiums will also be reduced.  

For example, the cheapest premium for a 50 year old man with £100,000 of cover over 15 years would be £13.58 with Aegon. For a woman it would be £11.30 with Legal and General.

But of course, the major drawback to buying a policy at a later date is that you will have no cover up until that point.

Further tips

Bear in mind that, while covering your mortgage costs is important, you might want to take this one step further. After all, even if the mortgage is covered, would your family be able to cope with paying energy bills, food bills, council tax, without you? If you really want to ensure your family will be fully covered, make sure you check out this cover calculator to work out exactly how much cover you need.

It’s also worth noting that if you’re buying as a couple, a joint policy usually works out to be cheaper than buying to single policies. However, the problem with this is that it won’t give you as much cover as two single policies because it will only pay out once – when the first person dies, leaving the survivor without any cover. On the other hand, two single policies will pay out twice, so you’re effectively getting double the protection, and they rarely cost double the price.

Finally, for even more tips, have a read of Seven steps to buying life insurance. And don’t forget, if you want to ensure your family will always have a roof over its head, life insurance is a must!

More: How you’re jeopardising your financial future | Five people who need life cover