This page was last updated on 1 July 2022.
Do I Need Life Insurance?
In the helpful article below, we look at what life insurance can do for you, and when people might want it.
Given that it is an expensive financial product, people can be reluctant to take out a plan.However, the protection it brings to those you love can be key.
We will help you figure out if life insurance is something that would help you, and whether the cost would be offset by the benefits.
Topics that you will find covered on this page
You can listen to an audio recording of this page below.
Is it important to have life insurance?
Life insurance is important to have because it gives financial protection to beneficiaries in the event of your death.
People with dependants, especially children, often find that life cover is even more crucial. This is because if they died the dependents would struggle to cover living expenses and pay the mortgage on their home.
There are quite a few different types of life insurance plans available, so you need to take into consideration what kind of life cover policy you need.
Who needs life insurance the least?
Generally speaking, those that are least likely to need a life insurance policy are those without dependents.For instance, some people have family members that are very reliant on their financial support. These family members are often children, or an older relation.
A life insurance policy helps because in the event of your death your family get a payout. This cash sum replaces the financial support they lose upon your death. Your family can then use this money for things like mortgages on the home, and bills.
However, if you do not have dependent family members then you may not need a life assurance policy. Typically single people are less likely to take out life insurance. People in a relationship but whose partner’s income is stable and sufficient might also not need life insurance.
Some people will also get a ‘death in service’ benefit as a perk with their employer. This means if they die while employed by that employer, this life policy will pay out.
The cost of cover is met by the employer, and cover can typically pay around 3 or 4x your salary. So, if your employer offers this cover you might not need to get a separate life insurance policy.
Finally, anyone thinking about life cover insurance needs to consider the cost. Life insurance may be something you desire, but can you really afford the amount the premiums will cost?
Those on a low income, therefore, might decide their need for life insurance doesn’t warrant the cost. If you are still undecided about whether life insurance policies are a good idea for you, get life insurance advice.
Always ensure the advisor you choose for life insurance is authorised and regulated by the financial conduct authority. Some people find it hard to choose an insurance provider, but an advisor can help you with this too.
Here is a useful video discussing the need for life insurance.
What happens if no life insurance?
There are two main risks of not having life insurance. They both result because, in the event of your death, insurance providers do not pay a lump sum to your beneficiaries. Without this money, the people you care about might have financial problems.
The first danger is that your family cannot afford to cover the costs of your funeral service, and burial/cremation. If your loved ones can’t afford this, how will they fund the funeral?
Some people find they have to take out a loan or plan for payments. However, this can cause a whole lot of debt problems down the line.
The second problem not having life insurance can create is financial struggles after the funeral. For example, your loved ones might need to pay off the mortgage debt left on the home, and the bills in the home too.
If you still have a repayment mortgage on the home, particularly a long term one, they might not be able to afford the monthly amount without the support of your income.
However, both of the dangers above can be reduced with the protection of life insurance policies.
How long do you need life insurance for?
The length of life insurance plans is called the term of the policy. Normally, people choose for their term life insurance to last until they have paid off the mortgage on their home. Others want the protection to last until their children are fully grown up, have left home, and are financially stable and independent.
The length that is right for you really depends on your personal preferences and aims. If you are finding it hard to decide on policy length, we recommend you speak to an insurance advisor.
One of the main types of cover is whole life insurance, which means the cover lasts until you die. This obviously offers more protection on your estate, and ensures beneficiaries always benefit when you die. However, the amount charged for this type of cover is much more.
Do you need life insurance with a mortgage?
To get a mortgage, life insurance isn’t strictly required. However, the cover can help pay off your mortgage should you die before the mortgage ends.
If you have loved ones that would want to keep living in the home if you died, would they be able to afford the mortgage themselves? If their income could not meet mortgage payments, they may have to take out a loan, remortgage, or sell the house.
However, if you take out life insurance cover the lump sum payout they get can be used to make mortgage payments. Many people want to ensure their family can keep living in the same house, which is why they take out the insurance when they get a mortgage, until it is paid off. They can also use the money to update and decorate their house.
Is life insurance worth it?
Whether life insurance is worth it or not is really a decision you have to make yourself. Everyone’s personal life is different, so what would really help one person could be a poor decision for another.
That said, there are a general tips to help you make the final call:
- If you have not yet paid off your mortgage, and want your children or partner to keep living there after you die, the insurance can help them meet mortgage payments.
- Funeral costs can be steep, and unaffordable for some people’s loved ones. With life insurance, the payout can help cover the fees involved.
- Some families provide other means of financial support to their relatives. Perhaps they pay their children’s car insurance, or tuition fees, for example. Life insurance may be worth taking out if you need to ensure they still have this support after you die,
- If you are the main breadwinner, your partner may not be able to maintain the same quality of life without your money. So you might want life insurance to help them supplement their reduced earnings/savings.
Finally, some people are covered by a work policy. If you are, and the cover is to a sufficient level- great! You don’t need to take out cover. However, sometimes workplace policies don’t meet requirements. Then, you could think its best to invest in further cover.
Can you get a mortgage without life insurance?
Yes, it is possible to be given a mortgage without life insurance. However, some lenders will require you to have it. Others might offer you better mortgage rates if you do. One instance where this might happen is if you get a weak credit score.
A weak credit score may occur if you have missed payments for your credit cards or other bills. It can make getting accepted for a mortgage harder because the lender worries about whether you will be able to make all repayments.
If you hold a life insurance policy, your family can pay off the mortgage using the payout they get. This reassures the mortgage lender that they won’t lose out.
So, life insurance can make getting a mortgage easier or cheaper for some. However, the amount you save might not offset the cost of the insurance. You should discuss the best plan for mortgages with/without life insurance with an expert advisor.
Can I get critical illness cover too?
Yes, there are joint life insurance and critical illness cover plans out there. This not only means you get a payout if you die, you also get a payout if you get an illness that the policy specifically covered. You are also insured if you suffer an eligible injury.
Of course, adding this onto your policy makes your monthly premiums more expensive. However, if cover for critical illness is something you think you need, it can be cheaper to get one bundled policy than two separate ones.
Something else to bear in mind is that preexisting health conditions will not be covered regardless of whether your critical illness is bundled with life insurance or a standalone policy.
You must always disclose any medical conditions you have, along with your medical history and lifestyle factors to your insurer. These will affect your premiums. You should also remember that not all illnesses and diseases will be covered by the policy.
So, always check what illness your plan covers before you sign the agreement.