Last updated: 11/09/2020 | Estimated Reading Time: 4 minutes
Life insurance - do you need it?
Many people don't buy themselves life insurance due to the morbid nature of the topic. However life insurance can be a great way to give yourself peace of mind if you want to make sure that your loved ones are looked after once you pass away.
Having said this, life insurance can be expensive and not everybody needs it. Before you run out and take out a life insurance policy it is worth thinking about how much you need one.
In This Guide:
- Are you the main source of income to your family?
- Do both you and your partner earn?
- Are you a stay at home parent?
- Death in service cover
- Are you single without dependents?
- Types of cover
- Personal questions
Are you the main source of income to your family?
If your family are financially dependent on you, you may want to consider taking out a life insurance policy. In the event of your death a life insurance company will pay out either a lump sum or an income to your dependents.
Without this payout from the insurance company your family may be unable to afford to pay off the remainder of your mortgage or pay their everyday living costs.
Do both you and your partner earn?
If you and your partner are both employed, you may assume that they would be able to manage without you. This may well be the case in many households but it is worth thinking about all the same.
Your family may be able to cope with both of your incomes but would they be able to continue doing so if you were not around to help financially?
Are you a stay at home parent?
If you are a stay at home parent, you may not bring any money into the household yourself. However you should not automatically assume that your family would be unaffected financially if you were to die.
If you were not around to look after your children, then could your partner afford to give up work in order to do so? In most cases this is not possible. It is important to think about the cost of childcare and how that would be handled in your absence.
Death in service cover
Death in service cover is a sum paid out by your employer if you die during your time working for the company.
This sum is tax free and is normally around 400% of your annual salary. This can be a real help in the event of your death but you should not assume that it can completely replace a life insurance policy. Life insurance policies often pay out much more than death in service benefits and it is often advised that you should insure a sum of up to ten times your annual salary.
Are you single without dependents?
If you are single with no dependents, it is unlikely that you really have any need for life insurance. This is because the cost of insurance premiums would probably prove an unnecessary expense.
If you are elderly and your children are already moved out and paying for themselves, you may want to consider whether or not paying high premiums on life insurance is really worth the money.
Types of cover
There are many different forms of life insurance and working out which one is best for you is the key to making sure you don't overspend.
Term insurance covers you for an agreed upon amount of time. This means that you will pay lower premiums because you are not guaranteed to receive a payout. These types of policy tend to be much less expensive than whole of life cover.
Whole of life cover is also known as life assurance. This is because it guarantees a payout at some point in time. As its name suggests, whole of life insurance covers you from the start of the policy until the time of your death.
It is important to be aware that when getting a life insurance quote, the company will ask you many questions about your lifestyle and general health. This is perfectly normal and happens because they want to know how likely you are to be claiming on the policy.
They are likely to ask you about your weight, height, age and medical history. Some people will be required to undergo a medical and others will be required to give a doctor's copy of their medical history.