Take cover this year

The wonderful thing about new year's resolutions is that they can give you the incentive you need to get your life - and your finances - in order. Sorting out your life insurance may not be the most appealing task you've ever had, but get it done early and you can feel secure for the rest of the year.

When people's circumstances change, they don't always remember to update their insurance, and this becomes even more important if they have dependents. So if you have children, or a new baby on the way, you and your partner should take out life cover to protect each other financially. Otherwise, in the event of a death, the surviving partner will be left with a huge financial headache.

There's no need to be over-insured, though. So if you are single and don't have any children then it may not be worth buying life insurance, since the house would be most likely sold on your death and the mortgage debt repaid.

Since life cover is so important, it's good to know that it is not a difficult product to buy or shop around for. Like other types of insurance, the premiums you pay depend on your age, gender, health, and whether you smoke. The insurance company may want to look at your medical records when they are assessing your premiums, and they will use this to decide how much to charge. Most won't cover you for pre-existing conditions such as very serious life-threatening illnesses.

First, check whether you already have life cover - it may be included in a pension at work, and is sometimes called a "death in service benefit".

If you are already a homeowner then you will probably have sufficient life insurance cover to pay the mortgage if you die. However, if you also have a young family then you need to think about how much more money you would need in addition in order for them to be cared for if you were no longer around. As a rough estimate you should be looking at around ?100,000 to ?150,000 worth of cover, depending on your outgoings and standard of living.

Then shop around, since unlike investment products, it's a simple matter of buying the best value policy around. "Term assurance is 95% a matter of price," says Phillipa Gee, investment strategist at Torquil Clark, an independent financial adviser (IFA) in Wolverhampton. "Just as you should shop around for car insurance from time to time, it is also a good idea to compare the costs of life cover to see if you could save any money."

There are two different types of life cover - term assurance or a family income benefit plan. The first pays a lump sum on your death, while the second will pay a regular income, and can be cheaper. You need to specify when you select the policy whether you would want the instalments to rise with inflation - which would mean a higher initial cost.

If you are not married, it could be worth arranging separate life cover rather than buying a joint policy. "You may be better off with two policies because if you split up the joint policy would have to go," says Chris Jordan, director of the independent adviser Heron House Financial Management in Newport, Wales. If one of you is a smoker it is worth seeing if two separate policies would be cheaper than a joint one.

When buying life cover, keep it simple. Steer clear of anything which includes an investment element - sometimes referred to as a "whole of life policy". Sometimes life insurance is sold together with critical illness cover, which pays out if you have a heart attack, stroke, cancer, or other life-threatening condition, but can be very expensive. It's better to buy cover separately.

When you are comparing policies, watch out for the phrase "waiver of premium", which is sometimes also known as "waiver of contribution". This means that the insurance company will continue to pay the premiums on your behalf if you become too ill to work. Some policies will cover you if you are unable to perform your own specific job and others will only pay out if you are completely unable to work.

The cheapest cover is known as "decreasing term assurance" and means that the amount of cover reduces every year. Increasing term assurance can be useful for people who want the cover to keep pace with their earnings - for example to cover childcare costs.

There is another type of insurance, called income protection, which pays out if you are unable to work because of illness or injury. Also known as permanent health insurance or PHI, it is very expensive and most suitable for self-employed people. You would need some additional cash in an emergency fund because PHI policies tend to have a three to six month exclusion period before the payments start to arrive.

You can compare costs by using an online comparison website like Moneyfacts or Torquil Clarke. Some IFAs such as Torqil Clarke and Chelsea Financial Services will rebate up commission, saving you up to ?300 on a ?30 a month policy.