Don’t be caught short

There are other issues to consider. If you have a mortgage and you die, the bank will sell the house and recoup its money. Anything left over goes to your estate. If you would like your property to remain part of your estate, you should take out insurance to cover the mortgage.

Moreover, if there is a chance that your property could be worth less than your mortgage loan, you need to consider the impact on your estate. “Your debts do not die with you,” Mr Carr says.

Those issues aside, life cover is not necessary for a single person, so what protection should you consider? “In the generic pecking order, income protection comes top,” Mr Carr says. Income protection, which used to be known as permanent health insurance, gives you a tax-free replacement income until you are well enough to return to work, you retire or you die.

Income protection policies pay out if you are unable to work because of illness, but it is possible to buy extra cover in case of unemployment. Premiums are fixed and will not rise regardless of how many times you claim. Moreover, the insurer cannot exclude a condition, such as a bad back or stress, simply because you have already made one claim.

As with any insurance policy, however, you need to be careful about the terms. Difficulties arise with the definition of “unable to work”. The best policies are own-occupation ones, which pay out if you are unable to do your job.

Next best are suited-occupation policies, which pay out if you cannot do a job for which you have the right training or experience. “For example, a solicitor would not be expected to stack shelves,” Mr Carr says. Any-occupation policies are cheaper but less useful because they pay out only if you cannot do any job at all.

The other drawback with income protection is that it is expensive. “Policies are priced to the individual, so age, gender, occupation and whether or not you smoke are taken into account,” Mr Carr says. “Smokers pay roughly double. Women can also pay two or three times as much as male counterparts because women tend to make more claims.”

Although you may think that your white-collar job is not as risky as, say, working on an oil rig, some “safe” professions, such as teaching, command high premiums because most claims are for conditions such as stress and depression.

If you cannot afford an income protection policy, experts suggest payment protection insurance. Ideally, you should also buy a critical illness policy. Mr Carr says: “Income protection allows you to keep living your daily life, but critical illness cover can clear debts, help to pay for treatment or for amendments to your home.” However, unlike income protection policies, critical illness policies have a list of conditions for which they will and will not pay out. Some cancers, such as prostate and non-invasive skin cancer, are not generally covered.

Couples, especially those with children, should buy life cover before they consider protecting their income. Which sort of life cover depends on your circumstances. “We do not recommend joint life cover unless it is purely for a mortgage,” Mr Carr says. “For just about everybody else, two single policies are better: you get two policies for the price of one because the difference in premiums is marginal.”

Another tip is to have your life cover written into a trust. “That way you can ensure that the money goes to the right person, you can avoid delays caused by probate — which can be as long as six months — and there is no inheritance tax to pay,” Mr Carr says.

Young families should consider family income benefit instead of standard life cover. This pays out an income rather than a lump sum and costs roughly a third less. There are drawbacks. If a family has a 25-year policy for £20,000 a year and the person insured dies in year 24, the family would receive only one year of income.

HOW TO FIND YOUR PERFECT POLICY

Internet price comparison websites are the default option for most people when searching for cheap insurance. While sites such as insuresupermarket.com, insurancewide.com and confused.com are handy for car, travel and home cover, they are not so great when it comes to insuring your life.

Although these sites will provide life insurance quotes and generic information, they do not give advice. Consequently, if things go wrong you would not have a right to compensation through the Financial Ombudsman Service. There is also the risk that you will end up with unsuitable cover.

Buying cover directly from insurers also has disadvantages. Kevin Carr, of LifeSearch, the broker, says: “Unless you are prepared to do a lot of your own research, you may miss out on more suitable cover elsewhere, perhaps from a less well-known insurer.”

Specialist brokers and independent financial advisers will be able to help you to find the right life cover for you circumstances. Tofind one that specialises in personal protection, visit www.unbiased.co.uk.

When filling out life insurance forms, it is important not to omit any medical details that may be relevant to the application. If you claim later on and the insurer discovers that you withheld information, it could refuse to pay out altogether.

Common details that people do not include are smoking, high blood pressure and family medical history. Not knowing about family problems will not affect your premiums. Mr Carr says: “If you do not know, then say so. It will not count against you.”