Do I need life insurance?
Everyone’s circumstances are different but getting life cover can protect your loved ones when they need it most. But who should get life insurance and when? In this guide, we’ll explore what types of life insurance can be useful depending on your age, family factors and ultimately, whether you really need it.
Life cover explained
Before we can help you decide whether you need life insurance, we should settle any confusion about what it is.
Life cover can refer to various types of life insurance, where in exchange for your premiums, your loved ones can claim a cash sum in the event of your death (normally for a defined policy term).
Life cover is sometimes called ‘level cover life insurance’, as the amount of cover stays fixed for the duration of the policy. Life cover can also refer to decreasing life insurance – otherwise known as repayment mortgage life insurance – where the cash sum decreases roughly in line with the way repayment mortgages decrease. And finally, life cover can also mean critical illness cover – which can sometimes be added to a life insurance policy and can help minimise the financial impact on you and your family if you become critically ill.
Please remember that life insurance is not a savings or investment product and has no cash value unless a valid claim is made.
So, now that we’ve explained what it is, do you need life insurance?
You should consider getting life insurance if you have loved ones who are financially dependent on you. So if you have a spouse, children (or you're expecting a baby), have a civil partner, or any other financial dependants such as elderly relatives, the pay-out from a life insurance policy could prove invaluable in helping them meet ongoing living costs, from covering the mortgage to paying for school fees and utilities.
When do you need life insurance?
There is no exact age when you might need life insurance – though the minimum age you can take out a policy is 18. Typically, you might start thinking about applying for a life insurance policy when the following events happen:
- You take out a mortgage. Buying a property is a significant financial responsibility. Could your partner pay the mortgage if you were to pass away? Life insurance could ease this worry, and options like decreasing life insurance could be attractive if you want your payout to roughly decrease in line with your repayment mortgage.
- You have children. Given the cost of childcare, after-school clubs and feeding a family, parents are arguably the main contenders for who should get life insurance. Read our family life insurance guide.
- You have other dependants. Life insurance can also prove invaluable if you assume financial responsibility for other dependants, such as an older relative or a sibling with a disability.
- You’re in a long-term relationship. It can be tricky to decide when to take out life insurance, but one trigger for getting life insurance could be once you have a partner who depends on you financially, which may be less likely in the early days of a relationship. You may also want to consider joint life insurance.
Is life insurance ever a legal requirement?
No, there isn’t a specific law that states that you need life insurance when you apply for a mortgage. Instead, getting life cover is simply a step that most property owners would take as a means of protecting their loved ones if they were to die before the mortgage was paid off.
Simply put, could your partner afford the mortgage without a life insurance payout? Equally, if there is no mortgage in place could your partner cover everyday living costs such as household bills, nursery fees or rent bills.
Additionally, some lenders may insist that you have life insurance in place. If this is a condition of the mortgage, the lender will not release funds until you have protection to cover your borrowing. However, you still have the choice of which insurance provider to choose.
Who doesn’t need life insurance?
There are some circumstances where you may decide that you don’t need life insurance. For example, life insurance as a single person may not be necessary if you have no financial dependants.
Some homeowners may no longer feel they need life insurance if they’ve paid off the mortgage. However, if you no longer need to protect a mortgage with life insurance, a cash sum from a valid claim could help your family with other costs, such as household bills and any other ongoing expenses.
You may have a death in service benefit through your employer that would provide your loved ones with enough money to help them financially if you were to pass away while employed by your employer. However, its worth remembering that this benefit will only apply while for the duration of your employment, so you may still decide to get life insurance.
Do I need to put my life insurance in trust?
Everyone has different priorities, so we’ll explain what this means. By placing your life insurance policy under trust, which is a legal arrangement, it allows you as the owner of the policy (the settlor) to give your policy to a trusted group of people (the trustees) who look after it. At some time in the future, the trustees can pass it on to your chosen beneficiaries (those that will benefit from the policy).
The trustees have discretion about which of the beneficiaries to pass it on to, how much each will get and when. When a life policy is looked after in this way it is said to be 'in trust'. It should help to ensure that any money paid out from the policy would not be part of the estate of the person who held the policy, helping to minimise Inheritance Tax.