Life insurance: Don't put your head in the sand

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Purse Strings: It might seem morbid to think about life insurance, but ignoring it could leave your loved ones at risk, says Kara Gammell in Telegraph Wonder Women's weekly money advice column.

These days, many women of the house are the breadwinner. So it may surprise you to know that many don’t have life insurance in place to help protect their dependents or partner, should they die.

I know that most of us don’t like to think about dying as it is too depressing. In fact, when you look at figures from Brewin Dophin which show two in three people die without a will, it seems like when it comes to passing away, few of us accept that it will ever actually happen. But by putting our heads in the sand, we can leave our families at risk if we don't take out life insurance.

The good thing is, that with most mortgages you are required to have this type of cover, but many people living in rented accommodation wrongly overlook this type of insurance.

No matter where you live, if you have children, life insurance is crucial. Especially when you consider the fact that one-in-20 children lose a parent before they are finished full-time education.

But while many of us get some life insurance coverage through our employers, it is usually not enough to provide a safe future for our families.

= A grim reality =

Even in a two-income family, the loss of either parent would have extremely serious implications. Parents depend on each other in all sorts of ways that go beyond earning an income and paying the bills. In many cases, the surviving parent would have to leave their full-time job in order to care for the kids. Or if they choose to continue to work, the extra childcare needed would become very expensive.

Now, while this seems all very morbid, unfortunately, it’s a grim reality. A parent’s responsibility continues even after death. But there are steps you can take to ensure you family is financially secure.

It certainly isn’t expensive to put this protection in place. For instance, at the moment, a 30-year old woman would pay around £5 a month to get £100,000 of cover for 25 years.

In the past, much like car insurance, women benefited from lower life insurance premiums. Historically, women have paid cheaper rates because we have a longer life expectancy. But this is all about to change when the implementation of EU gender neutral legislation comes into effect on December 21. This ruling means that insurers will, for the first time ever, remove one of the key considerations when deciding on the premium that a person has to pay: our gender.

And some insurers are already pushing up their premiums. For instance, figures out this week from Consumer Intelligence, show that female life insurance rates have increased by as much as 20pc .

“We are starting to see major brands changing and big differences in pricing across the market,” said Ian Hughes, chief executive of Consumer Intelligence (Xetra: A0PNUT - news) .

“This is creating opportunities for some consumers to secure more competitive deals now than will be possible after December 21 when all providers will have to be entirely gender neutral. Women should act now if they are intending to buy life insurance as everything will change by Christmas.”

= How much cover is enough? =

But how much cover is enough? And how much does it cost?

The amount of life insurance you need depends mainly on your circumstances and what you want to achieve.

The general rule is that it should be enough to pay off any debts when you die and provide money so your partner and any children will be financially secure.

It may be worth considering a mix of cover - some to give you a lump sum and some family income benefit, which will pay a monthly income for the remaining term of the policy.

To cover your mortgage and other debts you need a lump sum payout. Since the mortgage is usually the main part of your debts, this part of the cover is probably only required until the end of the mortgage term.

For this purpose, the cheapest and easiest answer is either a level-term insurance where the payout remains constant throughout the period of the cover, which is ideal for an interest-only mortgage or a decreasing-term insurance where the payout will decrease in line with the amount left owing on a repayment mortgage.

If you do not have any children, it may be that paying off debts is all the cover you need and your partner would be able to go out to work and support themselves.

= Research your options =

If you are unsure about levels of life insurance you require, which will vary depending on personal circumstances, check www.getliferight.co.uk .

One way couples can increase their levels of protection when it comes to life insurance is to buy two separate policies which, according to Lifesearch, only cost about 10pc more than a joint policy.

The benefit is that you will get double the amount of cover you would receive from a joint policy and if anything happened to both lives, both policies would pay out, providing double the payout for a similar premium.

With joint life policies, if something happened to one life, the policy ends, leaving the surviving life uninsured. This often happens at an age where the other person is older and may not be in as good health, making the cost of replacing that cover either expensive or impossible.

Like any insurance, it is crucial that you shop around before you purchase a policy. Never assume that your bank or broker will offer you the best deal as many are usually tied to just one provider and can be very expensive. Be completely honest in your answers to all the questions on the application, for example your medical history, otherwise the policy could be worthless.

You might feel that you are having to give far too much information, but if you hold something back it could really affect whether the insurer pay out in the event of a claim.

Telegraph Wonder Women wants to hear what's on your mind when it comes to money. Are you perplexed by pensions, enraged by energy bills or confused by childcare costs? Email your questions or comments to wonderwomen@telegraph.co.uk with 'Purse Strings' in the subject line and we'll consider including them in future columns.