So you think disaster will never strike?

A third of us have no life cover. Yet if we die, our families could lose their homes and be wrecked financially. Melanie Bien reports
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The Independent Online

Accidents will happen and illness can strike, but many of us seem to assume that our charmed lives will last for ever. According to research from the Alliance & Leicester bank, almost a third of Britons haven't got life assurance.

Accidents will happen and illness can strike, but many of us seem to assume that our charmed lives will last for ever. According to research from the Alliance & Leicester bank, almost a third of Britons haven't got life assurance.

Of course, no one wants to dwell on thoughts of what might happen should they die, but the beginning of National Breast Cancer Awareness month ought to remind us that it's vital we do think the unthinkable if we don't want our loved ones to struggle financially.

Term life insurance pays out a lump sum on your death. If you are single and have no dependants, there is little point taking out a policy. But if you do have a young family, the lump sum they'll receive if you die during the policy term will be vital in helping them to pay off an outstanding mortgage, clear debts and perhaps provide an income.

If you are the main breadwinner, the case for this cover is unarguable, particularly as policies are so cheap. Well, some of them. New research from Sainsbury's Bank - which together with rival supermarkets Asda and Tesco is selling life insurance policies off the shelf alongside baked beans and cat food - says we are paying over the odds for cover.

It estimates that those of us who do bother to take out life insurance sometimes pay 150 per cent more than is strictly necessary. This works out at £15 a month in excess premiums, or £3,800 over 20 years.

"Competition in the life assurance market has increased, which has contributed towards falling premiums," says Raylene Bryan, life cover manager at Sainsbury's Bank. "However, this is wasted if people are not prepared to shop around for the best deals."

The table on the left shows the savings that can be made if you scour the market for cover. A 30-year-old non-smoking female buying £100,000 worth of level cover for a term of 20 years would pay £7.04 a month for a Scottish Widows policy, according to the online comparison service moneyextra.com. If she didn't shop around, she could pay rather more: £8.78 a month for a Bupa policy. Not the end of the world perhaps, but over time this adds up.

She could do better, or worse, depending on how many quotes she is prepared to look up. Moneysupermarket.com, another online comparison service, has a Liverpool Victoria policy with the same amount of cover for £6.80 a month. Yet it also unearths a Skandia Life policy costing £25 a month.

Price is important but don't forget to check the small print and ensure you are getting enough cover. Term life assurance is the cheapest kind of life policy available, providing cover for a fixed term only. So if you take out a 20-year policy and live longer than this, your family (and you) won't see a penny of your outlay returned.

Term assurance is available on a single or joint-life basis and you can also opt for a critical illness element, paying out on the diagnosis of cancer, a heart attack or stroke during the term of the policy. Other serious illnesses are covered: ask the insurer for more details.

Critical illness insurance will cost you extra, however, so you need to weigh up whether the protection is worth the price.

There are several types of term assurance. With level term, you choose how much you want to receive as a payout and the length of time that the policy covers (also known as the term). The sum is guaranteed and doesn't change.

Alternatively, you could opt for decreasing term assurance, where the sum falls over the term of the policy. This type of cover is useful, and cost-efficient, for clearing a repayment mortgage because the outstanding balance falls each year.

When shopping around, use a broker to save time and ensure you get exposure to the widest number of policies.

Once you've bought cover, it's tempting to think your job is done and simply forget about it. But it's vital to revisit the policy every couple of years to ensure you've still got enough protection: you may need to increase the sum assured in line with your earnings.

You may also want to increase your cover when other events occur, for example if you decide to get married, take on a bigger mortgage or have a baby. Check with an independent financial adviser if you aren't sure about the amount of cover you need.

Even if you are happy with your insurance, compare the cost of the premiums with what else is available on the market. The cost of life assurance is decreasing all the time, so you may find a cheaper policy with the same level of cover.

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