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?
- Do you need life insurance?
- How much does life insurance cost?
- Have you already got it?
- Other types of insurance to consider
What is life insurance?
Not sure what something means? Have a look at our Protection insurance glossary.
Life insurance can pay your dependents money as a lump sum or as regular payments if you die.
It’s 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 decide how it is paid out and whether it will cover specific payments, such as mortgage or rent.
You may need to think about whether receiving a payout will affect any means tested benefits your dependents might otherwise be eligible for.
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’s 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 usually only covers death – if you can’t provide for your family because of illness or disability, you won’t be covered.
Some life insurance policies provide a terminal benefit, although these are not automatically granted.
A terminal benefit will pay out on diagnosis of a terminal illness. Check the terms and conditions of your policy to see if you’re covered.
Most policies have some exclusions (things they don’t cover). For example, they might 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 might exclude any cause of death related to that illness.
You can buy other insurance products for these issues, which cover:
- long-term illness
- critical illness cover, or
- total and permanent disability.
Do you need life insurance?
If you have:
- dependants, e.g. 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, think about getting life insurance.
Who doesn’t need it?
You may not need life insurance if:
- you’re single
- your partner earns enough for your family to live on
- you’re on a low income and could be eligible for state benefits.
If you’re not sure get financial advice.
You might want to think about setting aside enough money to cover funeral expenses.
How much does life insurance 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).
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.
- your age
- your health
- your lifestyle
- whether you smoke
- the length of the policy
- 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’re to die from a medical condition, the cheaper your policy is likely to be.
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 might 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.
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’re 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.
- Read our at-a-glance guide to find out more about the differences between protection products.
This article is provided by the Money Advice Service.