The big question you have to ask yourself when you look at life insurance is what do you need it for?

You may need a life policy to cover a loan or your mortgage, or, you may want life insurance to support your family if you become critically ill or die.

Either way, life insurance is a good way of covering for these possibilities, and it can be quite cheap too. The trouble is, there are two stripes of life insurance:- the life insurance products that have an investment flavour, and the life insurance that just covers the risks above, or “Term” cover.

1. life insurance with an investment flavour

There are a lot of life products that pay out if you die and pay out if you don't. They sound great, because unlike “Term” insurance, if you don’t die, you get some money back.

The trouble is, if you remember back in Insurance School “101”, the premiums don’t actually give much profit… mostly they just pay for the risk. So, for you to buy a policy like this, you have to pay extra money into the scheme, and they can be quite expensive.

Now, we at Insurance Buster are not life insurance experts, and the fact that we know a few life insurance salesmen who are retired at 50 and living off the commission they earn each year from policies they sold years ago doesn’t make us experts either. So we are pretty neutral.

All we will say is that the FSA (Financial Services Authority, remember?) say “Usually, it's best to keep your insurance and investment needs separate.”

Here are some of the names of these types of products – life cover with an investment angle.

· Whole-of-life insurance
· With-profits bonds
· Income bonds
· Growth bonds
· Endowment policies
· And a whole lot more life insurance products that build up a cash-in value

I guess what the FSA are saying is what my Mum says:- “You don’t get anything for nothing”.

2. Term insurance

If your main concern is protecting your family in case you die, or covering your mortgage, then “term insurance” may be the most economical option.

This type of policy only pays out if you die within a particular period of time (the 'term', you see, it had nothing to do with school all along!). If you outlive the term, it pays out nothing. So you could agree to set that term at the date when your children become financially independent, if they ever do, or you could set it at the number of years remaining on your mortgage.

Some of these products:

· Lump sum term insurance
· Family income benefit
· Pension term assurance

All you do is choose a beneficiary, it’s best to pick your next of kin, and pay up a small sum each month. Hey presto, you’re next of kin is protected if you die. It helps them pay off any debts you may leave, such as Car Loans, Medical costs and credit card debts. These must be paid from the money and properties you leave behind, but that can leave your family very short of money.

The key is that the small sum you pay each month for Term cover is a lot smaller than with the investment types of products. As always Insurance Stall recommends you get a few quotes to see how much you should expect to pay, because once again premiums vary considerably from one insurer to another.

Why is that? Well, a life book is only as rich as the investments the insurer makes with all those premiums. So, they take your monthly tenner and pop it into a couple of investment funds and keep on moving the cash around to make sure the book always has enough cash to survive in the event of a sudden spate of deaths.

Consequently, if the insurer invests wisely they can keep premiums down, but if they get unlucky with their investments in the Nick Leeson retirement fund, premiums may be high. The important thing for you is your payments will not change over the term, and you can be sure the scheme is financially sound.

3. Critical Illness

One different type of cover that is sometimes classed along with these is something called Critical Illness Cover. A critical illness product helps you in the event that you suffer an illness such as cancer, a stroke, heart attack or MS. These are bad enough things to contemplate but the thought that having something like this could break your family financially as well as emotionally can be a terrible thought.

By the way, watch out for the “Riders”… these are additional cover offered by the insurer at the time of application and added to the standard agreement in return for an additional premium. They can be worth a look as Insurers try their best to differentiate their product from everyone else’s.

Have you got issues?

1. Smoking

Smoking makes you more susceptible to a number of fatal diseases so expect to pay more for your life insurance. I know you didn’t need us to tell you that but there, it’s said now.

By the way, if you do smoke and you don’t declare that, your insurance company may decide not to pay out when you die.

2. Gender

Yep, if you are male, the chances are you will not live as long as if you were female. That is what actuaries call “life”.

3. Age

The older you get, the harder it is to get life cover, but this applies especially so after the age of 75.

4. Joint Cover

You can buy some policies that offer joint cover for you and your spouse. Age old rule: check the premium. If you aren’t getting a break for doing that, then why do it? You are just placing all your eggs in one basket (ahem, so to speak).

5. Tax

Payouts for life cover and terminal illness cover are usually tax-free, but in some cases, inheritance tax may kick in. If that’s your case ask about putting your money in a Trust.