Look After Your Life

If you've recently had a change in your circumstances, don't forget to re-assess your insurance needs - and a good place to start is with life cover.

Some friends of mine had some happy news to share at the weekend - they've just had a bouncing baby boy. As first time parents they were keen for some suggestions on how to cope with sleepless nights, as well as how to apply for their son's Child Trust Fund (and while I could help with the second request, I was no help with the first!). But the one thing I did suggest they should look into was life insurance.

Indeed, a good number of us scorn the idea of insurance. After all, when you hear about the problems people have making claims and the cost of the monthly premiums; it does make you wonder if it's worth it. And for some types of insurance that's certainly an arguable point.

Many Fools, for example choose to self-insure (i.e. put away a small sum each month into a high interest savings account) rather than fork out £100+ per year for pet insurance. The hope is clearly that Tiddles/Fido will manage to get by with little more than his inoculations (which you typically can't claim for anyway) for the duration of his life - and if not, you'll have a pot of cash to draw on (which will remain yours if all goes well).

Of course there are risks involved - veterinary fees for a broken leg or medical condition can be shockingly high and could end up costing you a pretty sum on top of what you'd squirreled away. But many of us still think that's a gamble worth taking.

Do you need cover?

But can the same be said for life insurance? Well the first thing to consider is whether or not you need it. After all, the purpose of life cover is to pay off your debts and provide your family with some level of income, should you die. If you have no one relying on you financially why would you need it? Why not save your cash and look into other types of cover (such as income protection insurance) instead?

But for parents with young children, such as my friends, life insurance can be seen as vital to protect your loved ones should something happen to you.

How much cover do you need?

But how much cover do you need? Well this can be a complicated sum to work out - while you don't want to pay for unnecessary cover you don't want to risk being underinsured either. Consider what your debts add up to - do you have a mortgage, personal loans, credit card balances? Try plugging them, as well as your monthly outgoings into a life insurance calculator - it should give you a feel for the amount of cover you need. It's often quoted that roughly twelve times your gross income should give your family a decent standard of living - but this will obviously vary from household to household.

Life Cover from your Employer

Now before you whiz off to get some quotes, make sure to check that you aren't getting at least some of this cover already. Many employers, for example, offer staff three or four times their salary in life cover, and for free, too. Check your benefits package or ask your HR department - you may find you have a good proportion of what you need already.

Insure both partners

Another vital point to remember is that both partners need to be covered. Don't fall into the trap of insuring the main breadwinner and ignoring a non-working partner - after all, could you manage to take care of the kids while working, too?

Don't pay for unnecessary cover

Now you need to consider how long you need your policy to last. A good rule of thumb is to ensure you're covered at least until your children become financially independent (i.e. have started working).

Family Income Benefit

And remember, there are alternatives to the life insurance route. Family Income benefit, for example will pay your dependents an income, should you die before reaching pensionable age, rather than a lump sum which can be preferable.

Watch out also for joint policies for couples as they can often pay out after the first death only, leaving the surviving partner uninsured. Separate policies for each partner can be a far better (and surprisingly no more expensive) option. And putting that policy in trust can keep it separate from your estate should you die, which may protect it from the dreaded inheritance tax.

Get some quotes

Finally, when you have a good idea of what you want, it's time to get some quotes. You can either do this by calling up providers individually, or save yourself some time by plugging your details into a comparison tool such as the one provided by our very own Life Insurance Service -- it's a great way to apply for a number of quotes from different providers at the same time.

Life insurance is clearly never going to be the most riveting of subjects -- indeed the very notion is quite depressing, so I'm not surprised my friends aren't keen to discuss it when cheerier topics come to mind. But as insurance goes, this could be one that'll help you sleep a little better at night.

More:  How You Might Get Cheaper Life Cover

The comments above are the opinions of the author only and do not represent advice specific to your circumstances.

This article has been approved and issued by Direct Life & Pension Ltd who are authorised and regulated by the Financial Services Authority.

The Motley Fool Insurance Service and The Motley Fool Life Insurance is a trading style of The Motley Fool Limited. The Motley Fool Life Insurance is provided and administered by Direct Life & Pension Services Limited. The Motley Fool Limited is an introducer appointed representative of Direct Life & Pension Services Limited, who are authorised and regulated by the Financial Services Authority. Registered Office: The Bailey, Skipton, North Yorkshire, BD23 1DN.