Eight Reasons Why You Need Life Insurance

Life insurance should be one of your top financial priorities. But have you got it covered?

Life insurance is a pretty gloomy subject. But, nevertheless, it's one you need to tackle head on. There's no getting away from the fact that most of you won't have enough protection. But what's even more alarming is you probably don't even know it. Many of you will have bought life insurance at the same time as buying a home. The two often go hand-in-hand. But that's usually where it stops. True, it's vital to ensure your mortgage can be paid off if the worst happens. But protecting a mortgage isn't the only reason to buy life insurance. Here's a rundown of eight key circumstances where you should consider taking out life insurance: You get married or enter into a civil partnership Once you tie the knot, your spouse or civil partner will probably rely on some of your income to pay the mortgage, cover household expenses and so on. And the chances are you will depend on them too. That means you'll need enough life insurance to cover the cost of their contribution - and your own - to the home. Of course, the same applies if you have set up home with your partner but you aren't married. You take on other debts Your mortgage is probably your largest debt but remember to add enough life cover to pay off outstanding debts such as personal loans and credit card balances. Leaving behind debts for your family to deal with is far from ideal. You start a family or adopt a child There's no doubt children are expensive. A 2006 survey by Legal & General revealed the costs of bringing up a child runs to almost £123,000 over 18 years*. That's a huge expense if one parent's income is lost. And if you have more children, remember to top up the amount of cover you have accordingly. You're a stay-at-home parent It's not only the main wage earner who needs life cover. The cost of replacing the work stay-at-home mums and dads do is far greater than you might think. In fact, Legal & General estimates it costs the equivalent of more than £24,000 each year to look after children and run the home. That's not far off the average UK salary, so bear it in mind when you decide how much cover you need to adequately protect your family. Your salary increases If your household income increases significantly, you're standard of living will probably step up too. So make sure you have enough life insurance to support your family's new lifestyle. For example, if you have begun putting your children through private education, you'll need to factor in the expense of school fees when you calculate how much cover you need. You buy a new property or you increase your mortgage loan Many of you may already be in the habit of putting life insurance on your shopping list when you buy your first home. But what about increasing your cover when you move to a larger property later on? A shortfall in your cover could be a costly mistake. You have death in service with your employer Many employees have death in service as part of the benefits package provided by their employer. Death in service normally provides a cash lump sum of say, three or four times your annual salary. You might think you don't need any more cover than that. But let's say you earn £30,000 a year. Your death in service benefits might provide life cover of £90,000 to £120,000. That seems like a pretty hefty sum, but is it really going to be sufficient to pay off your mortgage, your debts, run the home and look after your children? Death in service, while a valuable benefit, shouldn't replace your own life cover because: It may not provide enough cover to fully protect your family It can't usually be adapted to suit changes in your circumstances If you leave your employer, you may be left with no cover at all You can't be sure who will receive the benefits in the event of your death.You rely on someone else to support you If someone else supports you financially or provides care for you, it makes sense to take out a life insurance policy on their life. Let's say later in life you move in with one of your children, so they can look after you in your twilight years. If anything happens to them, you could be left high and dry. You can insure someone other than yourself as long as you can demonstrate `insurable interest'. That basically means you have a legitimate reason for insuring their life, and you can prove their death will impact on your financial wellbeing. So finally, my fundamental point is this: make sure you have enough life insurance to start with and then review your protection needs as changes take place in your life. More: Read this article on how to keep the cost of extra cover down | Save £2,238 On Your Life Insurance | Find a competitive life insurance quote using The Motley Fool Insurance Service. *The Legal and General `Value Of A Mum' survey. 2006 editionThe 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: Pinnacle House, A1 Barnet Way, Borehamwood, Hertfordshire WD6 2XX.