Do I need life insurance?

Do I need life insurance?

A life insurance policy can pay out a lump sum or regular monthly/annual income if you die to the people who depend on you financially.

The money can be used for things like paying off the mortgage, clearing any debts, helping with your family’s everyday living costs, your children’s education, and covering the cost of your funeral.

If you want to leave a legacy for your loved ones, then life insurance can be used for that, too.

Anyone who has a partner, family and children, or someone else who relies on them financially, should consider life insurance. It can help provide peace of mind that, should you die unexpectedly, your loved ones would be able to afford payments on the mortgage or everyday living expenses without your income.

Is it important to have life insurance?

Some mortgage lenders make it a condition of their loan that you take out a life insurance policy.

Other than that, there’s no legal obligation to have life insurance.

However, if your death would have a financial impact on those you leave behind then taking out life insurance could be a wise move.

Take a look at your outgoings, then consider whether your loved ones would be able to afford to cover these bills and expenses without your income.

If there’s the chance that they’d struggle, then life insurance could be something to think about.

Who should take out life insurance?

If you’re single with no dependants, then life insurance probably won’t hold any value to you. But, if you have dependants to think of, and are part of a family that relies on you, then it makes sense to consider it.

People take out life insurance for different financial reasons. For example:

You’ve got a mortgage

Life insurance can help pay off your mortgage, easing a big financial responsibility on those left behind.

You’re the main breadwinner

If your income pays for most or all of your household outgoings, then your dependants could be left in dire straits financially if you die unexpectedly. A life insurance payout can step in to take care of them and cover the household bills and expenses.

Even if you’re the lower earner in a partnership - or don’t earn at all - life insurance is still worth considering. For example, if you’re the main carer for your children and you passed away suddenly, your partner might be left having to pay expensive childcare bills.

You’ve got children

Many people first think of life insurance when they start a family. Starting a policy when you have children can help give you peace of mind that they’ll be taken care of financially if you die. For this reason, some people choose a life policy that lasts until their children have left full-time education.

To cover inheritance tax

If your estate is liable for inheritance tax, that can take a big chunk out of your heirs’ fortune. Some people take out life insurance to help cover that tax bill. You can also put a life insurance policy ‘in trust’, which means the lump sum payout isn’t subject to inheritance tax. Putting a policy in trust is something you should get professional legal or financial advice on.

To pay for your funeral.

Some people who don’t have a large amount of savings opt to take out life insurance to help pay towards the cost of their funeral.

You want to leave a legacy.

Life insurance can simply be a way to leave your loved ones a sum of money that can help them on their way in life.

Choosing the right type of policy

There are a few different types of life insurance and they work in slightly different ways.

You may want to choose how long you want the policy to run for (the term) or select an option that runs indefinitely, until you die.

Also, some policies offer a predetermined lump sum, while with others, the payout reduces with time and is designed to cover a decreasing debt like a repayment mortgage.

Take a look at our guide to the different types of life insurance to see which might best suit your circumstances.

Not sure how much life insurance you need? Head over to our life insurance calculator to find out.