Thinking ahead

When we're sorting through our finances, most of us prefer to think about how we might afford the next house, car or holiday, rather than to ponder the complexities of life and health insurance.

But whatever stage you're at in life, it's important to protect the assets you've already got - as well as saving and investing to grow more of them in the future.

In your 20s

In your 20s you may not have any significant financial commitments, and will probably have no dependants - in which case, it may be most sensible to insure your ability to earn money.

Income protection insurance - also known as permanent health insurance - covers you if sickness or disability prevents you from working. It gives you a tax-free monthly income, normally set at between 50% and 65% of your salary, which kicks in after a defined period of absence from work - this is normally four, eight, 13, 26 or 52 weeks, and the longer the deferred period, the lower your premiums will be.

Starting private medical insurance when you're young can also make sense: as you are likely to be fairly healthy, you are likely to avoid any exclusions due to pre-existing illnesses. A heart and cancer policy from Bupa would cost a healthy 25-year-old as little as ?8.52 a month, assuming a ?1,000 excess. Starting the same policy at the age of 45 would cost twice that - and by then you may have pre-existing illnesses that would not be covered anyway.

In your 30s

If you are a homeowner, as you probably will be by the time you reach your 30s, you will need, as an absolute minimum, life insurance to cover your mortgage. If you are married and especially if you have children and/or a non-earning partner, you will probably also want to set up additional life cover so that if you died, they would get the mortgage paid off and a further lump sum in lieu of your earnings.

A 20-year life policy that pays out ?100,000 on death could cost as little as ?10 per month for a 34-year-old; a 10-year policy taken out at the age of 49 might cost ?25 a month or more. If you can afford to, go for guaranteed premium policies, which are more expensive than reviewable premiums but, as the name suggests, are guaranteed to stay at the same level rather than rising whenever the insurer reprices policies on the basis of claims experience and other factors.

In your 40s

Critical illness insurance is another option worth considering in your 30s and 40s. This insures you against a defined set of conditions like cancer, heart attack or multiple sclerosis, so that if they strike - and leading CI insurer Allied Dunbar claims 1 in 4 men and 1 in 5 women get illnesses covered by CI policies before they reach the age of 65 - you get a lump sum payout.

In theory, by the time you are in your 40s, it would be sensible to have most or all of these insurances. But paying for them can become expensive. A 20-year, ?100,000 lump sum critical illness policy would cost a healthy 34-year-old just over ?33 per month; at 44, a 15-year policy would cost you around ?86, and a 49-year-old would have to pay more than ?125 for 10 years' cover, for example.

And Philippa Gee, investment strategist at financial advisers Torquil Clark, says it is important not to tie up too much money in insurance premiums: "There is a balance to strike between pinning all your hopes on insurance policies to pay for things if you get ill or die, and building up savings that would give you or your family a decent cushion."

In your 50s

By the time you reach your 50s, you may have already repaid your mortgage and your children may have become less of a financial burden - but you are older and therefore more likely to suffer from ill health.

So at this stage, rather than gearing everything towards lump sum payouts to protect your dependants, it may be sensible also to consider long-term care insurance - which provides a planned way of paying for some or all of the cost of any long-term care you may need in the future, either in your own home or in a residential or nursing home.

Currently, the state will only contribute totally to long term care costs if your assets - cash, bank and building society accounts, national savings, investments, stocks and shares, assets held overseas and any property you may own other than your own home - add up to ?11,500 or less. If your assets are worth between ?11,500 and ?18,500 some help may be available, but only after a stringent means test. With more than ?18,500 of assets, you will have to fund the full costs of residential or nursing home care.