Do I Need Life Insurance?
Yes, most people with dependants or financial commitments need life insurance. It pays a lump sum to your family if you die during the policy term, covering mortgage repayments, living costs, and outstanding debts.
Life insurance is not a legal requirement, but if anyone depends on your income or would inherit your debts, it is one of the most important financial decisions you can make.
This guide covers who needs life insurance, how much cover to get, the different policy types, what affects the cost, and how to avoid common mistakes like underinsuring or skipping a trust.
If anyone depends on your income or would inherit your debts, you almost certainly need life insurance. It pays a tax-free lump sum to your family, and writing the policy into a trust keeps it outside your estate for inheritance tax purposes.
Compare life insurance quotes to see how affordable cover can be.
- Who needs life insurance?
- What does life insurance cover?
- How much life insurance do you need?
- What types of life insurance are available?
- What affects the cost of life insurance?
- What happens if you die without life insurance?
- Should you put life insurance in a trust?
- When is the best time to take out life insurance?
- Frequently asked questions (FAQs)
Who needs life insurance?
Anyone who has financial dependants, a mortgage, or debts that would pass to their estate should have life insurance. If someone would face financial hardship because of your death, you need cover.
Not everyone needs life insurance. If you are single with no dependants, no mortgage, and enough savings to cover funeral costs, your estate can manage without a policy. Most people, however, fall into one of the categories below.
You have children
This is the most common reason people take out life insurance. If you have children and something happens to you, the payout replaces your income until they are financially independent.
Childcare alone can cost thousands of pounds per year, and that is before housing, food, clothing, school trips, and everything else. A policy that runs until your youngest turns 18 (or finishes university) gives your family a safety net for the years they need it most.
You have a mortgage
If you die before the mortgage is repaid, the outstanding balance does not disappear. Your family would need to continue the repayments, remortgage, or sell the home.
Many people take out a decreasing term policy that mirrors their repayment mortgage. The cover reduces as the balance falls, keeping premiums lower than a level term policy for the same starting amount.
You are the main earner
Even without children, if someone depends on your salary, your death would leave them unable to pay the bills. This includes a partner, a spouse, elderly parents you support, or siblings with additional needs.
You have debts
Personal loans, credit cards, and car finance do not automatically disappear when you die. Debts in your sole name become liabilities of your estate, reducing what your family inherits.
Life insurance can clear these debts so your family inherits a cleaner financial position rather than a pile of liabilities.
You are self-employed
If you are self-employed, life insurance is particularly important. You are unlikely to have death-in-service benefits through an employer, and your income stops the moment you cannot work.
A policy that covers your family while you are building the business gives them the same protection that employed people get automatically through workplace schemes.
What does life insurance cover?
Life insurance pays a tax-free lump sum to your beneficiaries if you die during the policy term. The payout can be used for anything: mortgage repayments, living costs, childcare, or clearing debts.
What is included in a standard policy
Most policies cover death from any cause, including illness, accidents, and natural causes. Many also include terminal illness cover, which pays out early if you are diagnosed with a condition where life expectancy is less than 12 months. MoneyHelper’s life insurance guide explains the basics in plain language.
The payout is always free from income tax. It can also be free from inheritance tax if the policy is written into a trust.
What is not covered
Most policies exclude suicide within the first 12 months. This is a standard exclusion across the industry. After that initial period, death by suicide is typically covered.
If you provide inaccurate information on your application, the insurer can refuse to pay the claim. Under the Consumer Insurance (Disclosure and Representations) Act 2012, you must take reasonable care to answer questions honestly. Deliberate misrepresentation can void the policy entirely. The FCA regulates how insurers handle claims and disputes.
How much life insurance do you need?
Calculate your cover based on what your family would actually need: the mortgage balance, outstanding debts, living costs for a set number of years, and any specific expenses like childcare or education.
Getting the amount right matters. Too little cover leaves your family short. Too much means you are paying for protection you do not need.
How to calculate your cover amount
Add up your debts. Include the outstanding mortgage balance, personal loans, credit cards, car finance, and any other liabilities your estate would need to clear.
Calculate ongoing living costs. Estimate your family’s monthly essential spending and multiply by the number of years they would need support. For most families with young children, this means until the youngest is 18 or finishes education.
Add specific costs. Include childcare, school fees, university costs, or anything else your family would need to pay for without your income.
Subtract existing provision. Deduct any death-in-service benefit from your employer, savings, investments, or other assets your family could use.
The result is your cover amount. It may be higher than you expect, but life insurance premiums are based on a fraction of the total cover, so even large sums are often affordable.
Do not forget the non-earning partner
Many couples overlook insuring the partner who does not earn a salary. If that person handles childcare and runs the household, replacing those responsibilities costs real money.
Full-time childcare, cleaning, cooking, and school runs would all need to be paid for. Insuring both partners, even if one does not work, is a sensible approach for most families.
What types of life insurance are available?
The two main types are level term insurance, which covers you for a fixed period with a fixed payout, and whole-of-life insurance, which covers you indefinitely. Most families choose term insurance because it is significantly cheaper.
Level term life insurance
You choose the cover amount and the term (typically 10 to 40 years). If you die during the term, the insurer pays the full amount. If you survive the term, the policy ends with no payout.
Premiums are fixed for the entire term, and the payout stays the same regardless of when you die within it. This is the most common type of life insurance in the UK.
Decreasing term life insurance
The payout reduces over time, designed to mirror a repayment mortgage. As the outstanding balance falls, so does the cover. Because the insurer’s liability decreases, premiums are lower than level term.
This is the right choice if your main goal is mortgage protection and you have a standard repayment mortgage. It is not suitable for interest-only mortgages, where the balance stays the same.
Whole-of-life insurance
Whole-of-life insurance guarantees a payout whenever you die, as long as you continue paying premiums. Because the insurer knows it will eventually pay out, premiums are substantially higher than term insurance.
It is most commonly used for inheritance tax planning or to leave a guaranteed sum for beneficiaries. Some policies have reviewable premiums that can increase significantly after 10 years, so check whether your policy is guaranteed or reviewable before committing.
| Type | Payout | Term | Best for | Cost |
| Level term | Fixed amount throughout | 10–40 years | Income replacement, general family protection | Moderate |
| Decreasing term | Reduces over time | Matches mortgage term | Repayment mortgage cover | Lowest |
| Whole-of-life | Guaranteed whenever you die | Lifetime | Inheritance tax planning, guaranteed legacy | Highest |
What affects the cost of life insurance?
Your age is the single biggest factor. Premiums increase significantly with age because the risk of dying during the term is higher. Locking in a policy while you are young and healthy is the most effective way to keep costs down.
Age and health
Insurers assess your current health, medical history, family history, and BMI. Pre-existing conditions do not automatically disqualify you, but they may result in higher premiums or specific exclusions.
Most term policies are issued based on the health questions you answer during the application. A full medical exam is rarely required unless you are applying for very high levels of cover.
Smoking, lifestyle, and occupation
Smokers pay substantially more than non-smokers. Most insurers classify you as a non-smoker if you have not used any nicotine products for at least 12 months.
High-risk jobs (construction, offshore work, the military) and dangerous hobbies (skydiving, motor racing, mountaineering) attract higher premiums. Desk-based workers with no hazardous hobbies pay standard rates.
| Factor | Impact on premium | What you can control |
| Age | Biggest factor; premiums roughly double every decade after 30 | Take out cover early |
| Health | Pre-existing conditions increase cost; BMI is assessed | Maintain healthy weight, disclose honestly |
| Smoking | Smokers pay 50–100% more than non-smokers | Quit for 12+ months to qualify as non-smoker |
| Cover amount | Higher cover costs more, but not proportionally | Calculate your actual need (see above) |
| Policy term | Longer terms cost more | Match term to your need, not longer |
| Policy type | Whole-of-life costs 5–10× more than term | Choose term unless you need guaranteed payout |
| Occupation | High-risk jobs increase premiums | Declare accurately; changing job title fraudulently voids cover |
An insurance broker can help you compare policies across multiple providers, which is especially useful if you have a pre-existing condition or a non-standard occupation.
What happens if you die without life insurance?
Without life insurance, your family must cover your debts and living costs from your estate, savings, or their own income. For most families, this means a dramatic and immediate drop in their standard of living.
A realistic scenario
You have a mortgage, a partner at home with two young children, and some personal debt. Without life insurance, the mortgage still needs paying. Your partner would need to find work quickly, which means arranging and paying for full-time childcare.
Personal loans and credit cards become liabilities of your estate, reducing what is left. Probate can take months, and during that time your family may not have access to your accounts.
The result is that your family would likely need to sell the home, downsize, and adjust to a significantly reduced income at the worst possible time.
Death-in-service benefits are not enough on their own
Many employers offer death-in-service cover, typically paying two to four times your annual salary. This is valuable, but it only applies while you work for that employer. If you change jobs, are made redundant, or retire, the cover disappears. The Association of British Insurers reports that UK life insurers paid out over £4 billion in individual protection claims in a single year, showing how many families rely on personal policies rather than workplace cover alone.
Should you put life insurance in a trust?
Yes, in most cases. Writing your life insurance policy into a trust means the payout goes directly to your beneficiaries without passing through your estate, avoiding probate delays and potential inheritance tax.
How a trust works for life insurance
When a policy is in a trust, the payout is not part of your estate. This matters because your estate is subject to inheritance tax at 40% on anything above the nil-rate band (£325,000 in 2025/26). A large life insurance payout could push your estate over this threshold.
Placing the policy in a trust removes it from the inheritance tax calculation entirely. Most insurers offer a free trust service when you take out a policy. There is no ongoing cost, and you can name specific beneficiaries. GOV.UK’s inheritance tax guidance explains the nil-rate band and exemptions in detail.
When is the best time to take out life insurance?
The best time is as early as possible. Premiums are based on your age and health at the time you apply, so the younger and healthier you are, the cheaper the policy will be for its entire term.
Key life events that should trigger a review
Taking out a mortgage, having your first child, getting married, or starting a business are all moments when your financial responsibilities increase. Each one is a reason to either take out new cover or review existing policies.
If your health changes, you may also want to consider health insurance alongside life cover to protect against the costs of treatment and time off work.
Frequently asked questions (FAQs)
Yes, but you may pay a higher premium or face exclusions for specific conditions. Most mainstream insurers will still offer cover. Specialist brokers can help you find policies designed for people with conditions like diabetes, heart disease, or cancer in remission.
Not usually. Most term life policies are issued based on the health questions you answer during the application. The insurer may request a GP report or blood tests for very high levels of cover or if your application raises specific questions.
Yes. Many people have multiple policies. For example, you might have a decreasing term policy to cover your mortgage and a separate level term policy to replace your income for your family.
Life insurance pays out if you die during the policy term. Critical illness cover pays a lump sum if you are diagnosed with a specified serious illness, such as cancer, stroke, or heart attack. You can often add critical illness cover to a life insurance policy for an additional premium.
It is arguably even more important. You are unlikely to have death-in-service benefits from an employer, and your family has no employer-funded safety net. A personal life insurance policy fills that gap.
Yes, you can cancel at any time with no early termination penalty for term life insurance. However, if you cancel and later want new cover, you will be older and potentially less healthy, meaning higher premiums or reduced options.
The payout itself is free from income tax. However, if the policy is not written into a trust, the payout forms part of your estate and may be subject to inheritance tax at 40% on the amount above the nil-rate band. Writing the policy into a trust avoids this.
Term life insurance is affordable for most people. A healthy 30-year-old non-smoker can typically get £200,000 of level term cover for around £10 to £15 per month over a 25-year term. Costs increase with age, health conditions, and higher cover amounts.
Death-in-service is valuable but only covers you while you work for that employer. If you change jobs, are made redundant, or retire early, the cover stops. A personal policy stays with you regardless of your employment.
It is a rough starting point that suggests your cover should equal 10 times your annual salary. In practice, your actual need depends on your mortgage, debts, dependants, and existing provision. Use the calculation method above for a more accurate figure, or compare life insurance quotes to see what different cover levels cost.