Do You Actually Need Life Insurance?
Life insurance is not for everyone. You need it if other people are financially dependent on you — a partner, children, or anyone who relies on your income to meet their living costs or pay a mortgage. Single people with no dependants and no mortgage generally do not need life insurance. The question to ask is: if I died tomorrow, would my family be able to maintain their standard of living without my income? If the answer is no, you need life insurance.
"Single people with no dependants and no mortgage generally do not need life insurance"
Term Life Insurance
Term assurance pays a lump sum if you die within a specified period (the term). Level term pays the same lump sum throughout the term — suitable for income replacement or family protection. Decreasing term has a payout that reduces over time, designed to match a repayment mortgage balance — it is cheaper than level term and is the most common type sold alongside mortgages. Family income benefit is a variation that pays a monthly income rather than a lump sum if you die — often more practical for families than a large lump sum.
How Much Cover Do You Need?
A common rule of thumb is 10× your annual salary, but a more precise calculation considers: your outstanding mortgage balance (so it can be repaid in full), income replacement for the years until your youngest child is financially independent, childcare costs, and any other significant debts. Example: £250,000 mortgage + £30,000/year income × 15 years = £700,000 total. This sounds large but premiums are affordable — a healthy 30-year-old can insure £500,000 of cover for 25 years for £15–20/month.
Critical Illness Cover
Critical illness cover pays a tax-free lump sum if you are diagnosed with a specified serious illness — typically cancer, heart attack, stroke, and 30–50 other conditions depending on the insurer. It does not require you to die, only to receive a qualifying diagnosis. This is particularly valuable because the likelihood of making a serious illness claim during your working life is significantly higher than dying. Critical illness cover is more expensive than life insurance and the definitions matter — always compare what conditions are covered and at what severity.
"It does not require you to die, only to receive a qualifying diagnosis"
Income Protection — Often More Important Than Life Insurance
Income protection pays a proportion of your salary (typically 60–70%) if you cannot work due to illness or injury. Unlike critical illness cover which pays a one-off lump sum, income protection pays monthly until you return to work or reach retirement age. This is arguably more important than life insurance for people without significant assets — the likelihood of being unable to work for 3+ months at some point in your career is higher than dying while working. Check your employer's sick pay first — if it is generous, you need less cover.
Writing in Trust — Why It Matters
If you die without writing your life insurance policy in trust, the payout forms part of your estate. This means it goes through probate (which can take months or years), may be subject to inheritance tax if your estate exceeds £325,000, and your family cannot access the money until probate completes. Writing the policy in trust takes 15 minutes using a free form from your insurer and means the money is paid directly to your named beneficiaries, bypassing probate entirely, with no inheritance tax implications. Every life insurance policy should be written in trust.
When and How to Buy
Buy life insurance when your circumstances change: taking on a mortgage, getting married, having children. The younger and healthier you are when you apply, the lower your premiums — and crucially, any health condition you develop after buying a policy cannot be used to increase your premium or refuse a claim. Get quotes from at least two comparison sites and one specialist broker. Cavendish Online and LifeSearch both search the whole market for free. Complete the medical questions accurately and honestly — the consequences of non-disclosure at claim time are catastrophic for your family.
"Buy life insurance when your circumstances change: taking on a mortgage, getting married, having children"
Life insurance sold by banks and mortgage lenders at the point of sale is almost always overpriced — sometimes by 40–60% compared to identical cover bought independently. The policy your mortgage lender recommends is a profitable add-on for them, not a recommendation in your interest. Always get independent comparison quotes before buying.
Finance Motion — General guidance only.
Not regulated financial advice.