Do I need life insurance? – How to decide

7 min Read Published: 29 Apr 2022

Do I need life insurance - How to decideWorking out whether you need life insurance can be simple as long as you consider the impact of death on your particular circumstances. Death affects us all differently depending on the financial impacts on those around us as well as the financial obligations we leave behind.

In this article we look in detail at life insurance to answer the following questions:

What is life insurance?

Life insurance is a type of personal insurance policy that pays out a lump sum of money or a regular income if you die whilst insured. 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 need 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 provides financial protection in the event of

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.

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 products like critical illness cover and income protection cover.

How to decide if you need life insurance?

Question Action
  • 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, mortgages 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 Britain
  • 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 or any other personal insurances such as critical illness cover and 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 there is a need to make some provision for your death. 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 doing this further down this article.

Check if you already have life insurance

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

Some employees have what’s called death in service benefit, which is offered through their work. This benefit pays out a tax-free lump sum amount of money, typically 2 - 4 times their annual salary, if the employee dies during the time that they work for the company. 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 these benefits usually only exist while you stay in that particular job so you’ll lose the cover if you move jobs or company.

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

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 are some life insurance comparison costs looking at the impact of age and smoker status on the life insurance premiums charged.  The quotes show monthly premiums for a benefit amount of £100,000, with cover for 25 years and a level term structure.

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

Age Monthly premium for a non-smoker Monthly premium for a smoker
25 £3.94 £5.71
35 £6.00 £10.43
45 £12.42 £28.93

The premiums quoted are guaranteed premiums based on a person with no health concerns who does no dangerous activities and the premium amount will not change over the term of cover. 

If you aren’t sure 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 as well as 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 still 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 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 knowledgable, 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