Not everyone needs life insurance (also known as life cover and death cover). But if your children, partner or other relatives depend on your income to cover the mortgage or other living expenses, then the answer is yes – you probably do want life insurance, since it will help provide for your family in the event of your death.
What is life insurance?
Life insurance can pay your dependents money as a lump sum or as regular payments if you die. It is designed to provide you with the reassurance that your dependents will be looked after if you’re no longer there to provide.
The amount of money paid out depends on the level of cover you buy. You can also decide how it is paid out and whether it will cover specific payments, such as mortgage or rent.
There are two main types of life insurance:
Term life insurance policies run for a fixed period of time (known as the ‘term’ of your policy) – such as 5, 10 or 25 years. These kinds of policies only pay out if you die during the policy. There is no lump sum payable at the end of the policy term.
A whole-of-life policy will pay out no matter when you die, as long as you keep up with your premium payments.
What isn’t covered?
Life insurance only covers death – if you can’t provide for your family because of illness or disability, you won’t be covered.
Most policies have some exclusions (things they don’t cover). For example, they may not pay out if you die due to drug or alcohol abuse, and you normally have to pay extra to be covered when you take part in risky sports.
If you have a serious health problem when you take out the policy, your insurance may exclude any cause of death related to that illness.
You can buy other insurance products for these issues, which cover total and permanent disability, long term illness or critical illness cover.
Do you need it?
If you have dependents – such as school age children, a partner who relies on your income or a family living in a house with a mortgage that you pay – a life insurance policy can provide for them if you die. You might also want a policy which covers your funeral expenses.
You can’t rely on the government to take care of your family – the money they would get from the state is much lower than you’d probably expect. If you want to provide for your family financially if you die, life insurance is a must.
Who doesn’t need it?
If you are single, or if your partner earns enough for your family to live on, you may not need life insurance. But you may want to set aside enough money in savings to cover any funeral expenses.
How much does it cost?
Life insurance can be very good value.
Often just a few pence a day is all you need to provide your loved ones with plenty of financial protection (depending on your age and health status).
Did You Know?
The average premium for a non-smoker aged 54 taking out £100,000 of life insurance for 10 years is less than £1 a day – that’s half the price of a coffee!
Source: Which, April 2013
But monthly payments (also known as premiums) do vary, so it’s a good idea to shop around. Check exactly what is covered for the level of the monthly payment.
The price you pay for a life insurance policy depends on a number of things. These include the amount of money you want to cover, the length of the policy, but also your age, your health, your lifestyle, and whether you smoke.
For example, the younger you are and the less likely you are to die from a medical condition, the cheaper your policy is likely to be.
You can find out more in our guide on How and where to buy life insurance.
Have you already got it?
If you have an employee package that includes ‘death in service’ benefits, this will cover you for a multiple of your salary and you may not need additional life insurance. It’s up to you to work out if this policy is enough to cover your needs and whether or not you need an additional life insurance policy.
Bear in mind if you stop working for that employer, you won’t be covered under their policy anymore.
You can find out more in What financial protection might you already have?
Other types of insurance to consider
Life insurance covers the worst-case scenario, but it’s also important to consider how you might pay your bills or your mortgage if you couldn’t work because of illness or injury.
You can find out more in the links below.
Do you need income protection insurance? This type of insurance provides regular payments if you are unable to work due to illness or injury
Do you need critical illness insurance? This type of policy will provide you with a tax-free ‘lump sum’ if you’re diagnosed with a serious illness covered by your policy.
Do you need payment protection insurance? Payment protection insurance will help you keep up with payments if you can’t work because you’re ill, had an accident or made redundant.
Do you need short term protection insurance? This solution provides short term cover to help you pay for essential outgoings if you find yourself unable to work.