Do I need life insurance?

Life insurance is often bought when a big life event is on the horizon, such as a new baby or taking out a mortgage. But there are many other times you should be thinking about getting life cover. Here are some of the most common questions on life insurance.

Debbie Thompson

Life insurance expert

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Posted 31 JANUARY 2020

What are the benefits of life insurance?

The main benefits of life insurance are typically seen by your beneficiaries after you pass away. Your beneficiaries are the people (or person) you've chosen to receive the proceeds of your policy. Some of the advantages they could get include:

Cover for outstanding debts – so that your family can continue to meet repayments on mortgages, loans or credit card bills
A gift – a lump sum pay-out could give immediate help to cover funeral costs, or simply as money for the future

Is it compulsory to take out life insurance with a mortgage?

No, but linking a life policy to your mortgage is often a smart move. Sometimes known as 'mortgage protection life insurance', this type of cover can help your dependants meet any future mortgage payments should you pass away.

Mortgage life insurance is often sold as a  decreasing term  policy. Under this type of policy, the sum your beneficiaries would receive if you passed away reduces in line with your total mortgage debt. Another type of mortgage life insurance is level term insurance, where the amount your loved ones would get stays fixed throughout the life of your mortgage.

Is it ever compulsory to take out life cover?

Life insurance isn't mandatory, however it's worth giving serious thought to. After all, it's very common to take out insurance on the contents in your home, or when you travel, so it should make even more sense to ensure protection for yourself and your loved ones against the unexpected.

Have you already got life insurance?

There's a chance you could have some form of cover if, for instance, your job has a benefit called 'death in service'. This type of insurance, which pays out to a beneficiary when you die, typically offers a tax-free lump sum if you're employed by a company when you pass away. It's usually between two and four times your annual salary.

It's up to you to decide whether this pay-out would be sufficient to meet the needs of your beneficiaries. Don't forget, if you stop working for that company you won't be covered any more, whereas a separate life policy would continue to be active (as long as you're able to keep up with your payments).

Do I need life insurance if I'm single?

It's easy to assume that, if you're single with no children, you won't need life insurance, because no one's relying on your income. But there are circumstances when you might benefit from cover. Two reasons are:

To cover the high cost of funerals – one report has suggested that the cost of a service has risen by 70 per cent over the past decade. Having insurance in place could mean your family gets a pay-out to help them cover the cost of your service if the worst happens. Learn more in our guide to funeral cover.
To protect your family against debts – if you owe more than the total value of your assets, then, by naming a member of your family as your beneficiary, you could give that person enough funds to continue to make the debt repayments (or to clear your debt in full). This could be helpful if you pay the mortgage of a shared ownership home with a family member.

Who doesn’t need life insurance?

While life insurance can often be a smart investment, it’s not necessarily for everyone. Here are a few examples of people who may not need life insurance:

You’re too young – while it might seem obvious, children don’t need to take out life insurance. It’s similar with students, when your financial priorities often lie elsewhere. You should start thinking about getting cover as you get older
You’re too old – if you’re already at retirement age, you may find that it’s simply not worth taking out a policy. This is because premiums can rise significantly as you get older. You’re also likely in a more stable financial position, with your mortgage paid off and savings stored away
Singles – if you’re living alone, with no dependants, you may decide that you don’t need to take out cover, because there’s nobody who will require the financial security when you die
Your partner is the main/sole earner – if your financial contribution to your household is minimal, you may decide that you don’t need cover, but your partner does.

What are the main types of cover to compare?

There are a few different types of life insurance to think about. For example, are you looking for a guaranteed pay-out? If so, it may be worth considering a whole of life policy. Alternatively, a term policy – one of the most commonly bought types of life insurance – pays out a set amount, either as a lump sum or a regular income if you pass away within an agreed period. Ultimately, the life cover that works for you will depend on your individual needs.

Are there other types of insurance I should consider?

There are many types of life insurance for you to choose from, with each offering different levels of care, for a variety of circumstances:

Joint life insurance – if you and your partner have made a large financial commitment together, such as a mortgage, then a joint life policy offers your partner a lump sum in the event of your death, and vice versa. It only pays out once, but it doesn’t matter which of you dies first
Income protection insurance – provides you with financial security if you become unable to work. One of the most common types of income protection is accident, sickness and unemployment (ASU) insurance. This covers you for a range of incidents, providing you with an alternative tax-free income to cover your outgoings
Critical illness cover – offers financial protection if you suffer from a serious illness or injury that leaves you unable to work or with expensive medical costs
Mortgage protection insurance – a form of income protection insurance, this allows you to continue making your mortgage repayments, in the event that you’re unable to earn.

What factors affect the cost of life insurance?

There are several factors affecting the cost of a policy, including the amount of money you'd like your loved ones to receive if you pass away. Generally speaking, the larger your policy, the more your beneficiaries will get – but it will cost more. Other factors affecting the price of a policy include:

Your age – as you get older, you can expect to pay more for a premium. When you're younger, you are expected to live longer so your policy will reflect that
Your health – if your family has a history of serious illnesses (such as cancer or heart problems), then you can expect your policy to cost more. The same goes if you have any pre-existing medical conditions. That's any illness, injury or disease that existed before, or at the time of, taking out a policy
Your lifestyle – if you smoke and/or drink, it's likely to impact the cost of life insurance. During your application you'll be asked how regularly you exercise; improving your fitness and eating more healthily could both help to reduce the cost of your premium.