Mortgage lenders encourage all borrowers to take out life insurance, but it's only necessary if you have a partner and/or children. After all, if you're young, free and single, who stands to lose out if you kick the bucket? At the very worst, your mortgage lender will sell your house to pay off your home loan, which is no big deal! Why not consider Income Protection Insurance instead, which pays you an income if you can't work because of sickness, injury or disability.

However, at the very least, you should aim to pay off your debts and leave your wife and kids with something to live on if you've passed away. Amazingly, a quarter of homeowners don't even have enough life cover to pay off their mortgage if a breadwinner dies, which is just crazy!

On the other hand, although it's daft to put your family at risk of financial hardship, it's equally bone headed to over-insure yourself, aiming to leave your family a Lottery jackpot if you die. After all, big payouts mean big premiums!

Remember that if you have something to lose, you have something to insure. Don't forget to insure non-working partners, as it costs a small fortune to replace a housewife/husband. It's tough getting by when you've no-one to run your home and take care of your kids. Don't make the mistake of insuring yourself up to the hilt and leaving your partner unprotected.

Rule One with life insurance is to shop around. If you buy life insurance from your mortgage lender or elsewhere on the High Street, you'll pay well over the odds, because these policies cost several times as much as the Best Buys. Bear in mind that a saving of £10 a month adds up to £3,000 over 25 years!

The cost of life insurance has tumbled in recent years, which means that policies you've bought in the past may now be overpriced - even though you're a few years older. It's child's play to find cheaper cover online, thanks to a large number of price-comparison website and online brokers.

Another smart move is buying separate 'his' and 'hers' policies, instead of a 'joint life, first death policy', which pays out once and ceases after the first death, leaving the survivor uninsured. By buying two individual policies, you can get two payouts - potentially twice as much cover - for just a few pounds a month more. Also, individual policies also make life easier when it comes to inheritance tax, and if you separate or divorce, which is a lot less hassle than dividing up a joint policy!

If you have a partner or children, the first thing you need is enough cover to pay off your mortgage and other debts. After that, you need cover to replace at least some of your income. Realistically, cover of ten times your gross income (your salary before deductions) should give your dependants a reasonable standard of living and keep the wolf from the door.

Of course, how much money a family needs will vary from household to household so, ultimately, it's up to you to decide how much money should leave your family with a reasonable standard of living. Perhaps a better question is "How much cover can I afford?" - £20 a month will buy a non-smoking 35-year-old man at least £250,000 of life insurance for a twenty-year policy.

One thing is clear: the UK is grossly under-insured when it comes to life insurance. One report estimated the gap between the cover we have and the cover we should have at a mind-boggling £2,000,000,000,000. Yikes!

It makes sense to cover yourself until your normal retirement age, usually sixty or sixty-five. However, if you have young children, you should cover yourself until they are financially independent, which usually comes after they have left school or university and are earning their own money. There's no point in buying a policy that lasts until you reach, say, eighty, because your children will have fled the nest and, all being well, you'll be enjoying life as a pensioner.

Although a payout from a life insurance policy is tax free, it could form part of your estate and be liable to Inheritance Tax (IHT), which could gobble up to two-fifths (40%) of your payment. Yikes!

The simple way to avoid IHT is to place your policy 'in trust', which enables any payout to be made directly to your dependants, neatly avoiding the taxman, your estate and any Will. Many people use a 'flexible' trust, which allows you to control over what happens to your payout after death and will speed up payment. However, it cannot be used for policies that are assigned to (earmarked for) your mortgage lender.

If you're looking to cover your mortgage or other debt, you need to buy a policy that pays out a lump sum if you die, so that your entire debt is paid off. However, if you're protecting your partner or family, you don't need to buy a policy that delivers a Lottery-sized payout. After all, how many people have the skill to invest this money wisely to replace the income of a deceased partner or parent? Furthermore, big payouts mean big monthly premiums!

If you want to provide your partner or dependants with an income if you die before collecting your pension, family income benefit (FIB) is a far cheaper alternative to life insurance. Instead of dropping a lump sum in your family's lap, it pays them a tax-free income for a defined period. Buying FIB instead of a lump-sum policy could halve your monthly premiums.

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