Do I need Life Insurance?

Find out if life insurance is the right option for you.

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Our guide explains what factors you need to consider when taking out cover.

Life insurance is simply a way of ensuring your loved ones are taken care of financially should you pass away.

The best way to determine whether or not you need life insurance is to ask yourself a few simple questions, including:

  • Would my dependants be financially stable on their own in making certain payments, such as the mortgage or daily expenses?
  • Would my death have a financial impact on my children or partner?

If you’re the household’s main earner

Life insurance can either pay out one lump sum, or regular income payments upon death. It is therefore an essential purchase if you have a partner or have children who rely on your earnings.

For example, if you are the sole earner in the family, without life insurance your loved ones might not be able to fund the mortgage, rent, or other day-to-day expenses if you were to pass away.

Life insurance can either pay out one lump sum, or regular income payments upon death. It is therefore an essential purchase if you have a partner or have children who rely on your earnings.

If you and your partner are dual earners

What if you and your partner are both employed? You might not think you need life insurance if you are both earners.

The question to ask is if one income would then be enough to cover any expenses. It’s highly unlikely the bills would decrease in size in line with the loss of the deceased’s income, so joint life insurance could be worth considering.

Stay at home parent?

If you are a stay at home parent, consider who will cater financially for your dependants should you pass away. Similarly, if your partner would be financially stable enough to care for your children and stay in work/pay for a childminder.

Death-in-service cover

People often assume they can forgo life insurance if they have death-in-service cover through their employer. The scheme pays out a tax-free sum – sometimes as much as four times your annual salary – if you die while still employed by the firm. It can be valuable, but it’s not necessarily a substitute for your own life cover, when the sum insured is normally set at a much higher level.

Some advisers recommend life insurance of 10 times your annual salary, but your own needs will be determined by your financial commitments and requirements. But you should always take any death-in-service benefit into account when buying a separate policy.

Potentially, your death-in-service benefit money might be paid into a discretionary trust, which means you cannot nominate the beneficiaries. Also, you cannot normally link death-in-service benefit to a mortgage.

Read: Death-in-service cover versus life insurance

No dependants?

If you have no dependants, you probably don't need to worry about life insurance when you buy a home. Your mortgage would be settled by the proceeds of sale of the property following your death. You'd only need to think about life insurance if you wanted to organise your affairs and leave your property to a friend or charity. That said, if you are buying your home with someone who is not a partner or a family member, then both or all of those responsible for paying the mortgage would need to sort out life insurance in case one or more of them dies before the mortgage is paid off.

If you are elderly and your children have long flown the nest, you might not want to fork out for life insurance premiums.

If you’re over the age of 74, chances are you might struggle to find a life insurance policy that will cover you. At which point, it’s best to opt for funeral insurance. Funeral insurance pays out once the policy holder passes away, however whichever policy you opt for, be sure to read the small print to determine just what ‘costs’ are included.

Choosing the right policy type

There are a whole host of life insurance policies you can choose from, whether it’s a whole- of-life policy or a policy where you determine the duration, or ‘term’, of how long you need cover for. Our guide on life insurance policy types will help you decide which is right for you.

Life insurance types infographic

Comparing life insurance premiums

You should always compare premiums before you buy life insurance – and it’s easy with MoneySuperMarket’s free independent comparison site. We have policy details from all the leading life insurers to help you find the right cover at the right price.

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