Do I need life insurance? – How to decide

7 min Read Published: 31 May 2024

Do I need life insurance - How to decideWorking out if you need life insurance involves considering your personal circumstances and the financial impact that your death would have on those who are left behind. Life insurance creates a safety net to provide financial support to cover household bills, credit cards, mortgage payments, funeral costs, raising children and more for those who rely on your income or care.

In this article, we help you to work out if you need life insurance by addressing some key questions:

What is life insurance?

Life insurance pays out a lump sum of money or a regular income to your beneficiaries if you die. It is bought by people who want to create some financial security in the event of their death to provide for a family, pay off debts including a mortgage, fund an inheritance tax bill or simply cover the cost of a funeral. 

There are different types of life insurance products to choose from which are designed to suit your particular needs and personal circumstances. 

Read more about types of life cover in our article, “Types of life insurance explained”.

What does life insurance cover?

Life insurance will cover:

  • Death - death is usually not covered if self-inflicted in the first 12-18 months of a policy. It is also not covered in cases where it is found that you had not been honest during the application process. 
  • Diagnosis of a terminal illness - an early death payment can usually be claimed if you become terminally ill and are expected to live for less than 12 months and in some cases may payout if there is a diagnosis of Stage 4 cancer regardless of life expectancy.6

Life insurance policies won’t typically pay out anything for disability or less severe illness, these types of life events are covered by other insurance policies such as critical illness cover and income protection cover.

How to decide if you need life insurance?

Before deciding to buy life insurance, you should work out what your needs are and it is worthwhile taking stock of your circumstances and the financial effect that your death or indeed, your partner's death would have on you.

Life insurance questions about you and your circumstances Action to determine if you need life insurance
  • Does anyone depend on your income?
Work out the financial shortfall to your household each month including any changes that may need to take place eg: your partner gives up work to care for children
  • Do you provide care that would otherwise have to be paid for?
Work out whether your partner or someone else would be able to take over your duties and if not, how much it would cost to replace the care you provide
  • Do you have debts?
Work out how much it would cost to repay all or part of any loans, credit cards, or mortgage if you died before you repaid them
  • Do you have savings, investments or other assets which your family could access to support them financially should you die?
Work out how much money your family could access through your savings, investments, assets and family support to fund their financial requirements to live 
  • Does your family have access to funds to cover your funeral expenses?  
Work out how much money your family could access immediately if you died to pay for funeral expenses which average £4,000 in the UK
  • Will your estate be liable for inheritance tax?
Use our free Inheritance Tax Calculator to work out if and how much inheritance tax may be payable against your estate when you die
  • Do you have life insurance already via your employer or company?
Check if your employer provides life insurance, critical illness cover or income protection as part of your benefits package. You can deduct these from what you need but remember that you usually can’t take the benefits with you if you change employers. 

Once you have worked through the above questions, you will have a reasonable understanding of whether you need life insurance. Refining your answers and coming up with a tailored life insurance solution for you and your family will be easier now and we show you how to get expert help with this further in this article.

Check if you already have life insurance

Another point to consider when deciding if you need life insurance is whether you have access to any other forms of life insurance already.

If you are employed you may have a death-in-service benefit, provided by your employer. This type of life insurance pays out a tax-free lump sum of money, typically 2 - 4 times your annual salary and is paid out in the event of your death, while you are employed.

There is sometimes confusion due to the name, 'death-in-service' whereby people think it will only pay out if you die at work or as a result of your occupational tasks but this is not the case - death-in-service can pay out for death that happens naturally or due to an accident or illness at work or outside of work as long as you are a member of your employer's life insurance scheme.

You may want to deduct the free life cover you get through work from the overall amount of life cover you need but do remember that this life cover usually only exists while you are employed so you may lose the cover if you move to a new job and you may forget to replace it.

Check if you have any life insurance you may have bought or forgotten about. An excellent way to do this is to look through your direct debits and see if any are being paid for life insurance. 

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How much does life insurance cost?

The cost of life cover will vary depending on your specific circumstances. The monthly premium charged by the insurance company reflects your risk and the chances of you making a claim. The higher your risk, the higher the monthly premium.

Factors that affect the cost of life insurance include:

  • Age - the older you are, the higher the premium
  • Smoker status - if you smoke your premiums will be higher
  • Term - the longer you’re covered, the higher the premium
  • Benefit amount - the larger the amount that will pay out if you die, the higher the monthly premium
  • Medical history - if you have been ill in the past or have a current medical issue, the insurer may increase your monthly premium but not all insurance companies use the same rules and some are more lenient than others so you should speak to a specialist life insurance adviser to source the fairest provider of life cover for you

Here we have detailed life insurance comparison costs based on your age and smoker status.  The life insurance quotes show the monthly premiums for life insurance that will pay out a lump sum benefit amount of £100,000 and will cover you for 25 years on a level basis so that if you die at any point during the 25 years, the policy will pay out £100,000.

Monthly cost for £100,000 level term life insurance over 25 years

Age Monthly premium^ for a non-smoker Monthly premium^ for a smoker
25 £3.67 £6.00
35 £6.16 £11.81
45 £12.51 £30.46

^ monthly premiums are correct as of 31st May 20204 and will remain the same for 25 years, based on a person with no health concerns and no adverse risks due to their lifestyle or occupation 

If you are unsure how much life insurance you need we would recommend you talk to an independent insurance adviser* who will be able to assess your finances and calculate the right amount of cover for you, analyse the insurance market and recommend the most suitable product.

Things to consider when taking out a life insurance policy

Life insurance can be simple and easy to buy but ensuring that it is set up correctly for you and your family takes just a few extra considerations.

  1. Consider arranging your life insurance in a Trust - this will ensure that the money is paid out swiftly to your nominated beneficiaries and doesn't become liable for inheritance tax. It is simple to do and gives you the extra peace of mind that goes with knowing things will be executed correctly when you're not there.
  2. Consider individual life insurance with your partner instead of joint life insurance - it costs almost the same to have two separate life insurance policies as it does to have one joint life insurance policy. The difference is that if one person dies, the other will continue to be insured and if the worst happens and both people die, there are two payouts which is double the amount of cover. There is only ever one payout with a joint life insurance policy.
  3. Decreasing life insurance or mortgage life insurance can be cheaper than a level cover if you just want to cover your repayment mortgage because the decreasing cover mirrors your repayment mortgage balance as it decreases over time. It won't be appropriate if you have an interest-only mortgage because the balance on this type of mortgage doesn't reduce so it would be better to look at a level cover.

Get guidance to work out what life insurance you need

Now that you've understood the life scenarios for which life insurance is designed, you'll want to personalise your particular life insurance solution. We all have different lives, priorities and concerns and it stands to reason that our life insurance should reflect this.

Speaking to a life insurance specialist will provide you with the opportunity (free of charge) to:

  • Talk your concerns through with an expert
  • Discuss how much life cover you need
  • Tailor your life insurance to suit your budget
  • Receive support to set up a Trust (solicitors usually charge for this)
  • Know that your family will be supported if they need to claim

At Money to the Masses, we have extensively vetted and even personally used the services of a life insurance expert that does all of this at no cost to the customer. The advisers are extremely knowledgeable, helpful and have access to all insurance companies in the market. So, you can be sure that you're getting the best life insurance policy for you at the best price.

You can speak to a life insurance expert* and if you do go ahead with the life insurance policy they recommend (you're not obliged to), as a Money to the Masses reader, you'll receive up to £100 cashback.

Further reading

How much life insurance do I need?

How much should life insurance cost?



If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. This link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article