Do you really need life insurance?
Whether or not you need life insurance very much depends on your individual circumstances.
Generally speaking, anyone who has others relying on them financially would benefit from having some form of life insurance protection.
Therefore, you should ask yourself two questions:
- Would my loved ones struggle to continue their existing lifestyle without my financial input?
- Would the cost of my death have a major financial impact on my loved ones?
If the answer is yes, it’s likely having life insurance is very important…
Why do I need life insurance?
Without adequate life insurance, any financial stability you provided your loved ones would be lost if you were no longer around.
With the loss of your income could your dependants:
- Afford the mortgage repayments
- Meet day-to-day family living costs
- Meet additional childcare costs
- Cover the cost of your funeral
- Pay off any debts in your name.
A life insurance pay out could provide the necessary funds to cover all of the above and more, from as little as 20p-a-day.
Why do I need life insurance if I am single?
Strictly speaking, if you’re single you may not need life insurance.
However, upon your passing, the cost of the funeral will become the responsibility of your next of kin; whether that be your parents, siblings or other family members.
The average cost of a funeral has risen +122% over the past 15 years, resulting in the average cost of dying reaching nearly £10,000.
To many families, it would be hard to raise such funds, especially at very short notice.
As a result, even if single, you’re likely to benefit from life insurance if only to cover funeral costs.
Furthermore, whilst you may be single at present, in the future you may enter a relationship and possibly start a family.
The younger you are when arranging life insurance, the cheaper your premiums.
Therefore, to protect the financial wellbeing of future loved ones, it’s more cost-effective to arrange cover now.
Do I need life insurance if I have no dependants?
With regards to the life insurance industry, the term dependants refers to anyone who depends on you financially.
This may be children, a spouse or other family member who rely on your financial input to maintain their lifestyle.
Generally speaking, it may not be essential for you to have cover in place if no one relies on you.
However, as previously mentioned the cost of dying is significant and will fall to those closest to you after your passing.
Therefore, if this expense is going to have a financial impact on loved ones’, it’s best to arrange cover sooner rather than later.
What life insurance do I need?
The type of life insurance policy you need depends on what it is you’re wanting to cover.
Generally speaking, there are two different types of life insurance; those which expire after a set term and those which last for life.
There are three different types of term-based cover; level term, decreasing term and family income benefit.
If you outlive the term of any of these policies no pay out is issued and the cover expires.
Level term life insurance provides your loved ones with a fixed lump sum pay out if the worst were to happen to you.
The value of this pay out doesn’t change making it ideal for covering costs such as; an interest-only mortgage, day-to-day living costs, the cost of a funeral or an inheritance.
Decreasing term, on the other hand, provides your loved ones with a pay out which reduces over time making it ideal for covering the cost of a repayment mortgage.
The pay out sum can be set to decrease at the same rate as the outstanding balance.
Because the risk to the insurer reduces over time, decreasing term cover is cheaper than level term.
Family income benefit
Lastly, family income benefit provides your loved ones with a tax-free monthly income for the remaining policy term.
This is ideal for helping cover day-to-day living costs and replacing your lost income.
…with regards to life insurance which guarantees a pay out, there are two options; whole of life and over 50s life insurance.
Whole of life insurance
Whole of life insurance is similar to level term in the sense it provides a fixed lump sum pay out if the worst were to happen to you.
However, because payments are made for the rest of your life it’s best suited to those in later life but who boast good health.
Because the insurer asks medical questions and acceptance isn’t guaranteed you can secure a greater sum assured compared with an over 50s plan.
Over 50 life insurance
Whilst this may seem appealing, and is certainly ideal for anyone with less than favourable health, the sum assured is generally much lower.
As a result, this is only really suitable for covering the cost of your funeral or providing an inheritance.
Do I need whole of life insurance?
It may be tempting to arrange whole of life insurance due to a pay out being guaranteed.
However, this tends to make this type of life insurance more expensive.
Furthermore, you’ll be required to pay premiums for the rest of your life. This means that if you’re young or in good health, there is potential you could pay more into the policy than your loved ones would receive.
As a result, whole of life cover tends to be best suited to those in later life who are in good health.
It provides a fixed lump sum pay out making it ideal for an inheritance or covering funeral costs.
Do I need life insurance if I don’t have a mortgage?
Whilst having a mortgage is a very good reason for having adequate life insurance, there are many other aspects in life which could also benefit from such cover.
A life insurance pay out can be used for whatever the recipients deem fit, including:
- Paying for your funeral
- Covering debts in your name
- Providing an inheritance
- Or even a holiday.
Therefore, there are many reasons, other than for a mortgage, to take out a life insurance policy.
Furthermore, the younger you arrange cover the cheaper your monthly premiums will be.
Therefore, if a mortgage is something you aspire to in the future, it may be best to arrange cover sooner rather than later.
Do I need life insurance if I receive death in service?
When employed by a company it’s common for staff to benefit from death in service.
This usually means that your employer will pay 2-4 times your annual salary to your loved ones if you were to pass away.
However, this doesn’t (necessarily) eliminate the need for life insurance.
It’s important to consider whether or not this sum would be sufficient to support your dependants until they become financially independent.
Furthermore, this isn’t a benefit offered by all employers and the benefit doesn’t travel with you if you change jobs.
Therefore, this could leave you unprotected and having to arrange cover at an older age, resulting in high premiums.
As a result, many people would benefit from having life insurance in place as well as their death in service benefit.
Do I need life insurance after retirement?
Regardless of your age, it’s expensive to die.
As mentioned throughout this post the average cost of a funeral has risen +122% over the past 15 years and that doesn’t include legal fees.
As a result, without adequate protection in place, this cost will need to be funded by your loved ones or your estate.
To prevent this financial burden from falling to your loved ones, or their inheritance being diminished, it’s best to have adequate cover in place, even throughout retirement.
Do I need life insurance if I have a pension?
While your pension will help finance your lifestyle, it’s unlikely to be sufficient to cover the financial strain if the worst were to happen to you.
By the time you receive your pension, it’s likely all your affairs are in order, however, there is still the significant cost of dying.
The average cost of dying has now risen to almost £10,000 when taking into account legal fees and the ceremony.
As a result, having in place adequate cover can prevent this financial burden falling to your loved ones.
Do I need life insurance for my child?
Parent’s often question if they should insure the life of their child, however, it’s important to consider the financial impact their loss would have.
Whilst time out of work is a certainty while you grieve, it’s unlikely to have a too significant impact financially, with many employers being supportive in these situations.
If you’re self-employed and need to take time away from work you’re likely to be much more vulnerable.
However, if the worst were to happen to you, the financial impact would most certainly affect the life of your children.
As a result, it’s always best to focus efforts on insuring yourself to guarantee your loved ones are protected.
Do I need terminal illness cover?
At Reassured, this isn’t a question which needs to be asked.
All of the life insurance policies we sell include terminal illness cover as standard.
This means that if something were to happen to you, you could make an early claim, allowing you to get your financial affairs in order and provide peace of mind.
Do I need critical illness cover?
Critical illness cover provides you with a pay out if you’re diagnosed with a serious, yet not terminal, illness.
This pay out can then be used to fund private medical treatment, make necessary home adaptations or simply enjoy with your loved ones.
Critical illness cover can be added to a life insurance policy at an additional cost, or as a standalone product.
Anyone who would suffer financially if they were diagnosed with an illness and no longer able to work would benefit from having critical illness cover.
Compare life insurance, (to secure your best quote)
The cost of life insurance can vary significantly between providers, making it essential to compare quotes to ensure you get the best deal.
At Reassured, we provide an award-winning broker service, carrying out all the hard work for you.
As well as comparing multiple quotes from top insurers, we can also help with the application and writing your policy in trust.
And the best part is our FCA registered service is completely free for you to use.