Put very simply, life insurance provides money for your family when you die. It has other uses as well: it can be used to pay off a mortgage or other debts and can be used to provide a regular income.

Here is a simple explanation: the whole purpose of life insurance is to pay off your debts and provide support to your dependants by replacing some or all of your income if you die. You pay premiums to an insurance company, usually monthly or annually. In return, the insurance company will pay an agreed amount - the 'sum assured' - if you die during the life of the policy.

Your life insurance premiums vary according to a number of factors, including the sum assured and the length or 'term' of the policy, plus individual lifestyle factors such as your age, occupation, gender, state of health and whether you smoke. Smoking has become a major factor all on its own and you can save a great deal on premiums by giving up smoking. Most insurers will quote lower premiums once you've quit for a year or more.

When you buy a life insurance plan you are essentially gambling on the question of your longevity. Neither you nor your insurer wants you to die while you're covered, but your premiums are priced to reflect the risk of this happening. Of course, if you outlive your life insurance policy, it brings you nothing but peace of mind. Usually, you only stand to gain financially if you die, which is a high price to pay!

Mortgage lenders encourage all borrowers to take out a life insurance policy, but it's only necessary if you have a partner and/or children. After all, if you're young, free and single, who stands to lose out if you suddenly die? In a worst case scenario, your mortgage lender will sell your house to pay off your home loan, which is no big deal. Why not consider income protection insurance instead, which pays you an income if you can't work because of sickness, injury or disability.

But the least you can do to pay off your debts and leave your wife and kids with something to live on if you've passed away. Amazingly, a quarter of homeowners don't even have enough life cover to pay off their mortgage if a breadwinner dies, which is just madness.