Is life insurance worth it?

7 min Read Published: 15 Jan 2024

Is life insurance worth itThe answer to this question is subjective, so your personal circumstances are likely to determine whether life insurance is worth it or not. If you ask this question about most kinds of insurance, the answer would be the same - is buildings, car, mobile phone, pet insurance worth it? However life insurance can provide financial security and for some this is the value that it adds.

Unlike most other types of insurance, you won't directly experience the benefits of life insurance but knowing that it creates financial security for those you leave behind provides peace of mind and is likely to be the reason why many people think it is worthwhile to buy. 

Not everyone will need life insurance and it is important to consider when and why you need it. So, in this article, we explain when you may need life insurance, which circumstances give rise to a need for life insurance as well as how to work out what life insurance you need*

Do you need life insurance?

If your death would cause financial hardship for others then yes, you need life insurance. The importance of any insurance is not only determined by the monthly cost of it but also by understanding whether circumstances would be difficult or even catastrophic without it. Life insurance is designed to pay a tax-free cash lump sum of money or an income to cover costs that arise after death. This will help prevent any financial stress and hardship caused by death.

The financial implications of a premature death

  • Outstanding debts and mortgage cause dependents financial strain and may jeopardise housing
  • Lost income could mean that your household will struggle financially to meet regular living costs
  • Funeral costs are likely to arise and may require access to funds quite quickly
  • Your estate may breach inheritance tax thresholds giving rise to a bill for inheritance tax

Our article "Do you need life insurance?" helps pinpoint when life insurance is needed and when it is not.

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When should you consider buying life insurance?

It is normal to think about buying life insurance when you take on responsibilities that will still exist if you die. Entering into relationships with other people who become financially reliant on you and 

What do you need to protect if you die?

Look at your life and then imagine not being in it - think about who would struggle financially and how much money it would take to resolve the financial impact of your death. In the table below we explore some of the life events that create a need for life insurance and the reasons why.

Life events that create a need for life insurance

Life Event Why you need life insurance
Marriage/Cohabitation If your partner or spouse relies on your income they will usually need money to survive and maintain their lifestyle if you die.
Divorce If you're making or receiving maintenance payments, life insurance might be needed to ensure that it continues in the event of your death. It is sometimes a condition of a divorce settlement.
Birth/Adoption of a child Raising children is an expensive job and the cost of this could become a burden for a surviving parent or guardian. Whether you're earning an income or raising your children, the impact of your death will usually have a detrimental financial impact.
Borrowing Money Debts have to be repaid. If your family cannot afford the mortgage on their home, this could jeopardise the roof over their heads.
Inheritance If your estate is valued at more than the inheritance tax threshold, your beneficiaries might need access to funds to avoid selling assets to pay the tax bill.

How much life insurance do you need?

The amount of life insurance you need and how long you need it for are directly linked to what you need it for. This will change from time to time. A life insurance review will stop you from forgetting why you have the insurance in place and allow you to keep an eye on what you're spending so that it doesn't become unmanageable. Most reputable life insurance advisers* provide this service without charge so it makes good sense to speak to one to check that what you have is what you need.

If you would like to read more about how to work out how much life insurance you need, this article will help you "How much life insurance do I need?".

Family security is one of the largest drivers for buying life insurance and you can read about a specific kind of life insurance called Family Income Benefit in this article "The best and cheapest Family Income Benefit policy". However, it can be useful to consider different types of life insurance before you choose as each works slightly differently to meet the specific needs of you and your family. You can read more in our article, "Types of life insurance explained".

If you are worried about making provisions for inheritance tax then you may need to buy whole of life insurance that has no set period and pays out when you die, whenever that may be.

When is life insurance not worth it?

If there is no financial loss caused to anyone by your death then life insurance probably isn't worth it. The life events that may mean you do not need (or no longer need) life insurance are described in the table below.

Life Event Why you don't need life insurance
You pay off your mortgage/debts If your house is mortgage-free and/or there are no other debts, your family won't need the money to pay for these.
Your children grow up If your children no longer depend on you financially then they won't need a financial payout to survive if you die.
You retire If your income is no longer earned and/or your pension and savings will provide an adequate benefit to your spouse or partner to live on they may not need a life insurance payout to support them. Most people's outgoings reduce significantly in retirement.
Inheritance Tax If there is no inheritance tax payable on your estate or you are happy for it to be paid from the estate then you don't have to leave a sum of money to provide for this.
Funerals If there is enough money put aside to pay for funeral arrangements you needn't worry about making this provision. (Bear in mind the increasing cost of funerals over the years.)

When is the cheapest time to buy life insurance?

Life insurance is cheapest when you're young and healthy. Unfortunately, this is when very few of us are thinking about it. Buying a life insurance policy early in life can be worthwhile as it reduces the monthly payments and the overall cost of it even if you live a very long life. 

If you are young and healthy and have no financial dependents, then you may feel that life insurance is unnecessary. Ironically, this is exactly when life insurance is cheapest and easiest to buy for most people.

If you are reliant on your physical ability to work to earn the money that you depend on, consider sickness insurance such as income protection or critical illness insurance. These can provide you with a financial buffer while you recover in the form of an income or a tax-free cash lump sum if you become incapacitated through sickness or an accident. You can read more about income protection insurance and critical illness insurance in the following articles.

It is common for people to stop needing life insurance once they retire. For this reason, the most popular type of life insurance is a level term insurance policy. This is a policy that covers you for a set period of time and pays out a tax-free lump sum of money if you die before the policy finishes. Buying a policy like this and keeping it until retirement may be all you need.

Often people mistakenly put off buying life insurance in the hope that it will save them money in the long run, but in the tables below we have demonstrated that this isn't the case.

Does delaying term life insurance save you money?

Age at the start of the policy Monthly premium for £250,000 Level Life Insurance that expires at age 70 Total Cost of the policy up to age 70
35 years old £16.27 £6,833.40 (35 year policy)
50 years old £31.40 £7,536.00 (20 year policy)

Does delaying whole life insurance save you money?

Age at the start of the policy Monthly premium for £50,000 Whole of Life Insurance that runs until you die Total Cost if you live to 85
30 years old £27.47 £18,130.20
60 years old £80.93 £24,279.00

Crucially, a 30-year-old is less likely to have health conditions such as high blood pressure, diabetes or other illnesses than a 60-year-old. These types of medical conditions could make the insurance even more expensive and some health conditions could even result in your application being declined. It's a fact that the likelihood of developing certain health conditions increases with age.

Reasons for buying life insurance when you are young and healthy

  • It's usually cheaper even if you end up paying it for longer
  • The life insurance application will be simpler because you're more likely to be healthy
  • You can fix your monthly payments as life insurance is normally a fixed rate and not renewable each year

How to work out if buying life insurance is worthwhile

The best way to understand whether life insurance is worth it for you and how much life insurance you need to take out as well as how much it will cost is to speak with a specialist life insurance adviser*. It will allow you to discuss your circumstances and receive guidance on what to consider. Insurances that are relevant to you will be highlighted and then it is up to you whether you buy them. There is no one-size-fits-all solution and you should do what is right for you.

At Money to the Masses, we've vetted the services of a specialist life insurance broker* where the advisers provide this type of advice free of charge. They will tailor the insurance to your needs and tell you when something isn't right for you. Sticking to your budget is also part of what they build into this process. They're also trained to arrange your life insurance policy into trust, so that you can nominate who you want to benefit from the money in the event of a claim. You'll even receive up to £100 cashback when you arrange your insurance. 

 

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. The following 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 - LifeSearch