The credit crunch has had a huge impact on the Mortgage equity market. Homeowners are trying to borrow more money against their homes and lenders are increasing the cost of borrowing, as a result of falling house prices, household finances are becoming a strain for many.

For some, life insurance is offering a short term solution to their financial woes. Homeowners with young families are cancelling Life Insurance policies and hoping the worst doesn’t happen. This could not be a worse idea. Often a new policy will cost more because the older you are the more expensive life insurance becomes, you may also lose out on some benefits and features included in your current policy.

It is far better to use alternative means to reduce outgoing and think about sacrificing things that might be putting more of a strain on your finances thank you might think. For instance, smokers who quit buying a 20-pack of cigarettes day this time a year ago would now be £3,108 better off. Due to the increased health risks from smoking, most life assurance companies charge smokers over 50% more than they charge non-smokers. Smokers who’ve quit should ask their life assurance company to re-evaluate their original policy and charge them the cheaper ‘non-smoker’ rate once they pass the qualifying period.

Cashing in life insurance is not advisable in such situations of stress like the credit crunch. Life insurance is vital. The first step to getting life insurance is to find out what you might already be covered for. If you have an endowment mortgage, for example, this will include an element of life insurance to cover repayment of the loan on your death. It will only cover the amount originally borrowed, so if you've extended the mortgage over the years then this extra borrowing won't be paid off by the policy. So work out how much money will be needed to pay off all debts, including the mortgage, credit cards and personal loans.

Also the life insurance market is one that you can rely on during the credit crunch. Fierce competition in the life insurance market has kept premiums at reasonable levels at a time when all other household bills seem to be going up. For example, a 32-year-old male non-smoker could buy £100,000 of cover over 25 years for less than £8 per month. Even £500,000 of cover over the same period would cost less than £30 per month at current prices.

Unfortunately, according to broker, My Mortgage Direct, in an effort to save cash, homeowners are ditching life cover. Just 20% of new borrowers are opting for life cover to protect their mortgage. This is not advisable and just because homeowners are trying desperately to save money, this is no reason. They are underestimating the importance of life insurance and see is as non-essential.

While it might be hard to make ends meet in the current financial climate but it will be a great deal harder for one person to manage the mortgage repayments on their own should their partner die in the future.