Teresa Hunter: More home buyers opt out of life cover

ABOUT eight out of ten new home buyers are neglecting to take out life assurance to protect the roof over the family's head should the main earner die, triggering fears that many are dangerously exposed.

Traditionally, home buyers were obliged to buy cover when they bought a property by the terms of the mortgage that went with it. However, that compulsory condition was removed about ten years ago. Since then, sales of basic protection insurance, called term assurance, have plummeted.

Another worrying development is that as some men and women are leaving it later to settle down and start a family, they are not facing up to the fact that their years of heaviest financial commitment, will come much later in life. Buying life insurance to cover you after 60 is significantly more expensive and many are simply not bothering.

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Yet not only is term cover, known as the Cinderella of the insurance world, one of the best-value and cheapest financial products around, it has also fallen in price by about 40 per cent over the past six years, according to internet life broker, Lifesearch, as we are all living longer.

Some home buyers may have good reason not to want the cover. It is not a "must buy" for single people without any dependants. Other homebuyers may be protected by their employer. Finally, some mortgage buyers may already have life insurance, and do not need a new policy.

Nevertheless, only between 15 and 25 per cent of those taking out a mortgage are typically buying life assurance, according to Edinburgh insurance giant Aegon. At some mortgage brokers, where the focus is exclusively on selling mortgages, the figure is as low as 10 per cent.

The age at which we are buying has also risen sharply. Whereas most insurance was purchased by people in their twenties, the average age of those buying is now 35 to 40.

Aegon head of sales Alun Beynon said: " In the 1980s buying some life cover was a condition of a mortgage. But that has gone now. The result is that many who would automatically have bought life insurance are not doing so. But it is a big risk not protecting their families in this way."

Legal & General's Joe Wiggins agrees. He said: "We put in a huge effort to ensure the brokers we operate through concentrate on those sales associated with taking out a mortgage. This is the key time, when people are thinking about their financial futures and all these issues are in the front of their mind. As a result our sales record is higher than the industry generally with about 43 per cent of loans for a new home triggering a life policy sale. Our view is that if you don't seal the deal at this point, then they will probably not get around to arranging the cover they need."

Malcolm Tarling of the Association of British Insurers stressed the importance of protecting your family. He said: "Term assurance is the building block of all financial planning. It is cheap and easy to understand. If you buy no other financial product then this is the one you can't do without."

Term assurance is so named because it guarantees to pay out a certain amount of money if you die within an agreed amount of time or "term"; usually 25 years. As such it is simple and straightforward.

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It comes in three essential forms. The cheapest is decreasing term, where the sum assured reduces over time, perhaps as a debt like a mortgage also shrinks. Next is level term, where the sum paid out remains the same from beginning to end and then escalating term, where the protection increases in line with inflation.

Protection is very cheap for the under-30s, who are fit and healthy, but competition is also keeping costs keen.

Beynon explains: "As prices have come down, it is possible to shop around and save money by switching to a different policy. For this reason, the average life of a contract is seven years.

"Therefore policies are actually priced on a seven-year horizon, even though they may be 25-year contracts. Everything else being equal, you are much less likely to die over the next seven years, than over the next 25."

The advantage with buying a policy young is, should you experience any severe health problems, you will have cover.

Insurance becomes more expensive to buy as you get older, and more difficult if you have suffered health problems, such as high blood pressure, diabetes or cancer. Smokers will also face higher premiums. However, provided these have responded to treatment, you may still be able to get protection although it will cost more than with a clean bill of health.

Once you have a policy it is always worth shopping around from time to time to see if you could buy the same protection more cheaply. But never cancel a contract before you have another in place, in case you have difficulty qualifying for the price you saw in the advertisement or over the internet.

A major new problem looming on the horizon is insurer's reluctance to sell any life cover later in life, at a time when couples are leaving it later to start a family. This might leave them facing student finance bills and a mortgage into their 70s.

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Very few companies will offer policies to the over 60s, and almost no one will cover 80-year-olds.

Beynon adds: "The reality is although in general we are all living longer, as individuals the chance that we may die starts to rise significantly once you are in your mid-30s. If your family relies on your income for a roof over their head, then it is foolhardy not to insure it. "