Is life insurance worth it?

Key takeaways

• Life insurance can provide financial support for your loved ones if you die during the policy term

• It's most commonly used to help cover mortgages, household bills, childcare costs and other family expenses

• If nobody relies on your income or financial support, you may not need life insurance

Is life insurance worth it?

Life insurance is generally most beneficial to working-age adults with dependents who rely on their income. It can be an affordable way to make sure your loved ones will not struggle financially if you die unexpectedly.

For example, MoneySuperMarket customers pay an average of £23.69^{^} a month for policies that would pay £200,000 - £249,000 to their family if they died within the policy term.

A life insurance policy may not be worth it if you do not financially support anyone, and do not plan to do so in future.

Life insurance offers substantial returns if a worst-case scenario happens. For example, say you take out a £200,000 policy that costs £20 a month, and die after 30 years. The payout would be 28x what you paid in (£7,200).

What are the main benefits of life insurance?

The main benefit of life insurance is that it can protect your family from financial hardship if you die unexpectedly.

Your loved ones will receive a lump sum of cash which can be spent however they choose. For example, they could:

• Cover your share of the rent or mortgage, ensuring they can stay in the family home

• Pay household bills and day-to-day living costs, giving them financial breathing room and the option to take time off work to grieve

• Pay funeral costs, including for any specific wishes you may have, like scattering your ashes in a beloved holiday location

• Help with future big life expenses like university fees or housing deposits, so your children can still receive the financial help you would have wanted to give them

Another big benefit of life insurance is that the payout can be protected from inheritance tax if it is 'written in trust'. This is free to do and can be done directly through your life insurance provider.

Who would benefit from my life insurance policy?

Your life insurance payout would go to whomever you named as your beneficiaries. This could be:

• Your children

• Your partner or spouse

• Other family members

• Friends

• Charities

Many life insurance policies also include a terminal illness benefit. This means your insurer will pay out early if you are expected to die within a specified period, usually 12 months. You can then use the money to help cover your medical expenses, care costs, lost income, or anything else you choose.

💡 Top tip: If you add critical illness cover to your life insurance policy, you could also receive a payout if you're diagnosed with a serious illness covered by your policy, such as certain cancers, heart attacks or strokes.

What are the main benefits of level term life insurance?

Level term life insurance provides a fixed payout amount throughout the policy term. For example, if you take out £200,000 of cover for 25 years, the payout remains £200,000 whether you die in year two or year 24.

The main benefits of level term cover include:

• Help your family replace lost income

• Leave behind a financial lump sum

• Cover expenses that won't reduce over time

What are the main benefits of decreasing term life insurance?

Decreasing term life insurance is designed for debts that reduce over time, such as a repayment mortgage. The payout gradually falls throughout the policy term, broadly in line with the outstanding mortgage balance.

The main benefits of decreasing term cover include:

• Often lower premiums than level term cover

• Cover tailored to repayment mortgages

• Financial protection for your family if the mortgage has not been fully repaid

What are the main benefits of whole of life insurance?

Whole of life insurance, also called life assurance, provides cover for the rest of your life rather than for a fixed term. Over 50s life insurance is a type of whole of life insurance. As long as premiums are maintained and policy conditions are met, a payout is guaranteed when you die.

People often use whole of life cover to:

• Help cover inheritance tax liabilities

• Leave money to loved ones

• Help pay funeral costs

• Support estate planning

🚩 Premiums for whole of life insurance are usually higher than term life insurance, and it is possible you will pay in more than the eventual payout.

Can life insurance be used to pay my debts?

Yes, life insurance payouts can be used to help repay debts. Life insurance payouts not written in trust usually form part of your estate, which is made up of all the assets you own, such as your savings and your home.

Debts must be paid off from your estate before the remainder is handed over to your family. (The exception is UK student loans, which are wiped upon death.)

In most cases, debts cannot be inherited, so your loved ones will not need to pay any money back. If the value of your debts is higher than the value of your estate, any remaining debt will generally be written off.

You have the option of keeping your life insurance payout separate from your estate by placing it in trust. It will then go directly to your beneficiaries and your creditors generally cannot make a claim on it.

💡 Top tip: The exception is debts with shared legal responsibility. Examples would be a joint mortgage with your partner or your parents being the guarantor on a loan. In these cases, other people could be responsible for repaying some or all of your debt if you died.

Will life insurance cover my funeral costs?

Yes, life insurance payouts can be used to cover funeral costs.

The average price for a simple funeral is £5,140^{^} in the UK, a number that has been increasing for several years.

If you think your family would struggle to afford the unexpected expense or would like to make sure there are funds for specific send-off rites, life insurance is one way to cover the cost. Other popular options are funeral plans and putting money into savings.

📣 Did you know? 70%^{^} of people make provisions specifically to pay for their funeral, according to SunLife.

What are the alternatives to life insurance?

You can get some of the benefits of life insurance from other protection products such as a death in service benefit through your employer, critical illness cover or income protection insurance.

Alternatively, you could put money into a savings account or into investments.

Will my life insurance actually pay out if I die?

It's very likely your life insurance policy will pay out if you die within the policy term.96.5% ^{^} of life insurance claims across the UK industry were accepted in 2024. Some providers have even higher payout rates of up to 99%.

As long as you met the policy terms and supplied accurate information when applying, your loved ones should have no problem accessing their payout. Claims are generally only rejected if:

• Important information was withheld during the application process

• The policy had lapsed because premiums weren't paid

• The claim falls outside the policy terms

Will I get any money from my term life insurance policy if I outlive my policy term?

No, term life insurance policies only pay out if you die during the policy term. If the policy expires while you're still alive, there is no payout or refunds of premiums, and the cover ends.

However, many insurers also offer additional benefits that you can access while the policy is active. These vary by provider but often have a health and wellbeing focus, such as discounts on gym memberships or sports watches.

💡 Top tip: Whole of life insurance works differently because it is designed to pay out whenever you die (provided the policy remains in force.)

Where can I find the best life insurance for me?

The value of life insurance depends on your personal circumstances, so it's important to compare policies carefully.

Think about:

• How much cover your family would need

• How long they would need financial support

• Whether you want level, decreasing or whole of life cover

• Any additional features or benefits included

Our life insurance calculator can help you estimate how much cover you may need. We can also help you compare life insurance quotes from up to 19^{^} top UK life insurers.