Do I need life insurance? A UK guide to life cover

Everyone wants to feel secure. Unfortunately, accidents happen, and none of us can rule out dying earlier than expected. While death cannot be avoided, you can limit its financial consequences for your family, for example with life cover. We believe the sense of security and stability that a policy provides is valuable, and in this article we look at the facts that can help you decide whether you need it.

What is life insurance?

Life insurance, sometimes called life cover, is a contract between you and an insurance company. It is an arrangement in which the insurer agrees to pay out if you die while the policy is in force, subject to its terms and conditions. In return for the protection, you pay monthly premiums. There are also cases where a claim is refused – for example, if the insured person takes out the policy and takes their own life shortly afterwards.

Why do I need life cover?

There are several reasons why people in the UK take out life cover:

Financial security for your family

The main role of life cover is to protect your family financially if the person who provides for them dies. A policy will not spare them the loss, but it can give your partner and children the means to cover their living costs, pay for a funeral or fund university tuition fees.

Taking out a mortgage

In the UK, life insurance is not a legal requirement for a mortgage, although some lenders may make it a condition of a particular mortgage deal. Even so, a policy can give your family extra security: if you die, the payout could be used to repay the outstanding mortgage, which could help them stay in the home they live in.

Leaving money to your family

A life insurance payout can leave money to your family. A payout from an individual policy owned by the deceased may form part of their estate unless appropriate arrangements apply. A joint first-death policy normally pays the surviving policyholder. The position depends on policy ownership, terms and any trust or assignment. An appropriate trust can keep a payout outside the estate, but its legal and tax effects depend on the arrangements and circumstances. When you take out cover, you can choose a term that ends at a particular age, for example when you expect to retire. This matters particularly if you had children later in life and want to support them if you die early.

You also need to think about the risk of losing one family member’s income. If one partner earns more than the other, their death can cause serious financial problems. This is even more serious if you have dependent children and, as well as the mortgage, you are repaying a car lease or loans.

Do I need a life cover policy?

Life cover is not compulsory in the UK. It is up to you whether you want to protect your loved ones financially in the event of your death.

If you do not have a family and are not planning to start one, you may want to consider other products that could suit you better, such as Income Protection insurance. Even without dependants, you might consider a smaller policy if you want to cover debts or funeral costs; whether this is better than using savings depends on your circumstances.

Life cover in the UK – what sum to choose?

Choosing the right amount of cover is not easy, and it is hard to estimate without a detailed look at your needs. A higher sum insured gives your family more protection, but it also means higher monthly premiums. Remember that premiums have to be paid regularly: if you stop paying the premiums, the policy will usually be cancelled and your cover will end.

When choosing life insurance, it is worth considering the following factors:

• The value of your mortgage – We recommend that the sum insured is at least close to your current mortgage balance. You could die in 40 years or next week, and an unpaid mortgage could leave your family in serious financial difficulty.

• Your age – Premiums are normally lower the younger you are when you take out cover.

• Your family’s financial situation – If you have tens of thousands of pounds in shares, bonds or investment funds, your family has financial reserves to help them through both good and difficult times. If you save very little or nothing at all, a life insurance policy can partly make up for this.

Policies are available for a wide range of sums, from tens of thousands of pounds to £1 million or more.

The sum insured you choose also affects the premium. The actual price depends on your age, health, smoking status, the sum insured and the term. A personalised quote will show what you would pay.

You will find more independent information on this topic at: Life and protection insurance.

How many years to take out life cover in the UK?

There is no single right answer. The best term depends on your individual needs.

You are likely to need cover most if you have dependants, such as children. In that case, you may want the cover to last until your children are likely to be financially independent. If you want to provide your children with a regular income, family income benefit insurance may be a better option.

You could also choose cover that lasts until you retire. This can also be a reasonable approach, although bear in mind that by the time you retire you may have built up less in savings, because you will have been paying life insurance premiums.

A third option is a policy that lasts as long as your mortgage. This suits people who see insurance mainly as extra security for the family home. It is also a sensible idea, but you may want to consider whether a longer term would suit you better: premiums are normally lower the younger you are when you take out cover, and taking out new cover later in life usually costs more.

How much does life cover cost in the UK?

The cost of a monthly life insurance premium depends on a number of factors, including:

• Age of the insured person – the younger the insured person, the lower the premium;

• Lifestyle – smokers will pay more;

• Sum insured – a higher benefit means higher premiums;

• Health of the insured person – past medical conditions and BMI may be relevant for some insurers;

• Length of the policy – the longer the policy lasts, the higher the premiums, as the risk of death during the term increases;

• Special circumstances – people who take part in extreme sports may pay more for their insurance, depending on the activity.

That’s why it’s difficult to give us a specific amount right away. However, we can do so after a short meeting with our agent - we will provide you with a comprehensive insurance quote tailored to your needs and requirements. To arrange a free, no-obligation consultation, contact us today!