If you have responsibilities such as a family or a mortgage, a life insurance policy could mean a lot less heartache should anything happen to you.

Life insurance comes in different forms, including death cover, total and permanent disability, income protection and critical and serious illness. While having life insurance can be incredibly beneficial, be aware that there are a number of pitfalls to avoid when taking out a policy. Compare product disclosure statements and consider getting professional financial advice when working out what you need.

Research has found on average only 4 per cent of those with dependent children have life insurance for more than 10 times their earnings.  And six out of 10 of those with dependent children didn’t have enough life insurance cover to look after their loved ones for more than one year if they died.

Realistically, anyone with a responsibility to others should consider taking out death cover.

It should be taken out when a debt is created or a responsibility is incurred, generally if there’s a marriage or child, a mortgage or car loan. A single person with a mortgage should take out life insurance to cover both their debt and any final costs such as funeral expenses.

When we’re talking about a family situation or business person who’s running a business and there are employees and suppliers and customers who are dependent on that individual then it’s a more complicated calculation.  You need to assess what would be needed to replace that person financially if they were no longer there producing the income.

When applying for a policy it’s crucial to fill out the disclosure statement honestly and in full because failure to mention pre-existing health conditions means the life insurance company could refuse to pay up. If the questions are not answered accurately and honestly then that puts the whole insurance cover in jeopardy.

A 2005 report on life insurance by www.choice.com.au said it’s generally advised that people have death cover for around 10 times their annual salary and income protection for 75 per cent of their earnings. It says death cover can cost around 0.1 per cent of the amount insured, so somebody on $50,000 per year might pay $500 a year for $500,000 cover. Income protection insurance, where premiums are generally tax deductible, can cost around one week’s salary per year.

The Financial Industry Complaints Scheme received 147 complaints about life insurance last year, with the majority about income protection insurance. Choice spokeswoman Indira Naidoo said many people who take out income protection insurance don’t seem to realise that while some policies pay out if you’re unable to perform your normal occupation, others only pay if you can’t perform any occupation for which you’re suited by education, training or experience. There are very few that make it very clear it’s giving you protection for all sorts of work, not just the work you do.