Often, when financial times are tough, people can tend to overlook the value of life insurance. The need to prioritise monthly expenses is important, but underestimating the results of neglecting your insurance could be far more important in the long run.

In the tragic event of a family losing one or other of the main breadwinners, the value of investing a small sum per month becomes vital.

There are a number of policies available to suit all incomes and a number of things to consider while searching for the best deal for your family.

Things to Consider

The first and most important consideration for anyone thinking of taking up a life insurance policy is, how much will you need? There are a few basic rules of thumb for working out your necessary cover. The first is to take out roughly 10 to 15 times your annual income, another is to assess the mortgage and debts then add £100,000 for each child.

While these are fine as rules of thumb, it is wise to do a far more in depth analysis of your needs so your policy can be tailored to your family specifically. A simple and cost-effective way of working out your needs going forward is to do a Financial Needs Analysis (FNA). This is a relatively simple process which, which involves answering a number of questions about your personal financial situation.

The FNA will typically include you and your partners respective ages, your preferred retirement age and income, your funeral and medical expenses, your children's financial needs including education costs and your current investment portfolio and work related benefits.

Another important aspect to think about is to take out separate policies for each partner. Many couples have joint life insurance policies, which in the event of a serious illness or death could lead to the other partner not being covered later on in life. Two single policies are potentially worth twice the amount of cover and only cost a small amount more.

Inheritance Tax?

Life insurance policies are another financial stream that aren't immune from the tax man so it is vital to write your policy in trust. Policies are currently considered taxable under the inheritance tax which could see you losing 40% of the money. Setting up a trust is something that can be done quickly and easily, all you have to do is register your intention to set up the trust on your application form and the insurance company will help you with the details.

Once you have set up your policy, another way to get added benefit from it is to take out the free Guaranteed Insurability Option. This will provide you a chance to increase the cover you receive after a life changing event such as a new child at the same rate as the original policy. This can come in especially useful in the event that one partner is not in the same health as when the original policy was signed.

Another thing to remember is to check what you may be already entitled to receive in terms of employee benefits. Your job may well come with a long term illness cover or disability benefit and it is important to calculate exactly what you will be entitled to receive.