Do I need life insurance? It’s a question many of us have tentatively asked ourselves, unsure if we actually need insurance in our current situation. Aside from the uncertainty about whether it’s worth it, much like writing a will, the idea of life insurance is tough for us to face. Most of us don’t want to start thinking about our own mortality.

While it may feel like a tough question, more often than not the answer is yes – you should definitely have life insurance. Even if you’re a young, healthy non-smoker, taking out a policy could have some major benefits – as we’ve addressed before. First of all, we’ll go back to basics and explain just what life insurance is, why you need it, and what can happen if you don’t have it.

What is life insurance?

Life insurance is a type of insurance that is designed to help you financially provide for your loved ones after you die. When you take out a policy, you will choose a beneficiary who will receive a payout – either as a lump sum or a kind of monthly salary – upon your death. There are two main types of cover that you can choose from when taking out a life insurance policy; whole life or term-based.

Whole life:

• As the name suggests, a whole life policy will cover you for life.
• With this kind of policy, you’ll be able to add extra cash to accrue a larger payout upon your death.
• However, it is likely to take 12-15 years for a decent cash value to be built up.
• Often, a portion of the cash you build up is able to be withdrawn.
• Whole life policies tend to be more expensive initially, but have the potential to save you money over a long period of time.

Term:

• Only covers you for a specified term, e.g. 5, 10, 15, or 30 years.
• Provides death benefits only – you can’t use it as an investment for extra cash.
• Pays out only if you die during the term.
• Can often be converted to whole life insurance at a later date.

As with any type of insurance, the less likely you are to make a claim, the cheaper the policy. As such, to put in blankly, life insurance policies are cheaper for people who are less likely to die. Therefore, the cost of the policy is affected based on aspects of your health. This includes your smoker status, weight, if you do any dangerous activities such as extreme sports and, most importantly, your age.

Now we’ve run through what exactly life insurance is, we again ask the question: Do you need life insurance?

Consider it if:

• You’re the main earner in a household: You need to ensure that, in the event of your death, your dependents are able to cover any household expenses. This includes bills, rent and mortgage payments, as well as any day-to-day outgoings that your income would usually go towards. If you don’t think that your dependents could cover these costs after your passing, you need life insurance.
• You’re a stay-at-home parent: Even though the family won’t be relying on any income from you, your children may rely on you for childcare. If you were to pass away, would your partner make enough to cover childcare expenses? If not, life insurance is a must.
• You have ‘death-in-service’ cover: Some companies will offer a form of life insurance to their employees for free. However, while this ‘death-in-service’ cover can payout up to 4x your salary, it’s unlikely to be as good as that offered by a life insurance policy. As such, even if you’re covered at work, it’s worth seeking out your own policy too.
• If you and your partner are dual earners: If both you and your partner are earning an income, you may think that life insurance isn’t necessary. However, if one of you were to die, it is unlikely that your outgoings would be reduced by 50%. Therefore, you could consider taking out a dual policy that would cover both parties.
• You’re young and single: It’s easy to see why many people would not not feel that it would be important to have life insurance in this demographic. Despite this, there are situations where it could be useful, primarily if you would require a payout to help with funeral costs. However, although you have no dependents, you may wish to financially assist elderly relatives in the event of your death. Alternatively, you could consider taking out a policy if you would like to keep costs down later in life, as premiums for young people are a lot lower than those for the elderly.

Less necessary if:

• You have no dependents: If you have no dependents at all, you don’t require life insurance. If you have a mortgage, it will be settled post-mortem through the sale of your house. The only reason you would likely consider life insurance is to cover funeral costs when you die.
• You are elderly: As above, unless you need help with funeral costs, you needn’t consider life insurance. However, with many policies you are able to leave an insurance payout as a legacy in your will. Despite that, an elderly person’s life insurance premiums will likely be very high and likely not worth the cost.

So, should I get life insurance?

There are very few instances where life insurance would not be beneficial for you, even if you aren’t in the demographic that policies are targeted towards. If you are young – when policies are cheap – life insurance could be ideal. You may be intending on starting a family or buying a home in the future, so the added financial protection afforded to your family through life insurance could be extremely beneficial.

If you decide that life insurance is the way forward for your situation, never go direct to lenders, as you will often be paying far more than necessary. The same goes for situations such as getting a mortgage, where your mortgage provider may offer life insurance on top of the mortgage. For the best deal, you should always go to an independent adviser who will scour the market to find the best life insurance policy for you.

Have we answered your question? If not, our post on the hidden benefits of life insurance may help.

To find out if life insurance is right for you, it’s important to seek out impartial financial advice. Contact the friendly IMC life insurance team to discover which policies would be most beneficial in your situation.