Why life insurance is important

If you're looking into life insurance, it's completely normal to have questions. Do I really need it? How does it help? Is it worth it?

Life insurance pays out if you die while the policy's active, giving your loved ones some financial breathing room during a difficult time.

This guide walks you through how it works and why it might be worth having in place.

Why is life insurance important?

It gives your loved ones a financial cushion if you die while the policy's in place. It can help cover day-to-day costs, clear debts or keep up with the mortgage payments - taking some of the pressure off when everything else has changed.

It's not an easy thing to think about, but having cover in place means the people you care about wouldn't be left struggling without you.

5 reasons why life insurance is important

Let's take a look at the key benefits of having a life insurance policy in place:

1. It can help to financially protect your family 

Many people choose life insurance to help make sure their family would be financially supported if they weren't around anymore.

A pay out could help with costs like:

• Childcare – to cover the usual hours, or allow a surviving parent to reduce their working hours and take on more care themselves.
• School and education costs – uniforms, lunches, trips and supplies, or even help with future education like university
• Hobbies and family days out – keeping some routines and normality going can make a big difference during a difficult time

It's not about replacing you - but it can help ease the financial pressure if the worst were to happen.

2. It can help to protect your mortgage 

A mortgage is likely to be the biggest debt you'll ever take on. But more than that, it's the place you call home.

If you've bought a house on your own, life insurance could give your loved ones the money to pay off the mortgage if you die. That could mean keeping the home in the family, rather than it being sold to repay what's owed.

If you've bought with a partner, relative or friend, life insurance can help make sure they aren't covering the full cost alone. Depending on the payout, it could clear the mortgage entirely or help cover monthly payments until they find their feet.

3. It can help with inheritance tax planning 

If you have a large estate, inheritance tax could take a big chunk out of what you leave behind. Life insurance - especially a whole of life policy - is often used to offset that cost.

To do this, the policy needs to be written in trust. That keeps the payout separate from your estate, so it won't count towards your inheritance tax bill. It also means the money can go straight to your loved ones, without waiting for probate.

Inheritance tax is currently charged at 40% on any amount that takes an estate over the threshold of £325,000. 

4. It can protect your family from expensive funeral costs

Funerals aren't cheap. Right now, the average cost is around £4,285 and it's only going up - with estimates putting it at over £5,000 by 2029.

That's a big expense for your loved ones to cover, especially at short notice. A life insurance payout can help take that pressure off, so they can focus on giving you the send off you'd want - not worrying about how to pay for it.

5. It gives you one less thing to worry about

You can't predict what's around the corner, but you can make things a bit easier for the people you care about.

Life insurance means they'd have some financial support if you weren't around. It won't fix everything, but it can help cover the essentials and give them a bit more stability at a difficult time.

Do I need life insurance?

If someone depends on your income - whether that's a partner, kids or anyone else - life insurance is worth considering.

It's there to offer some financial support if you're no longer around, helping to ease pressure during a time of emotional stress.

That said, it's not something everyone needs. If you're single with no dependents, it might not be essential. And depending on your circumstances, a different type of cover - like critical illness cover or income protection - might be a better fit.

If you’re unsure, it’s a good idea to get help from an expert who can help you figure out what's right for you.

What types of life insurance are there?

There's a few different types of life insurance, and the right one for you depends on what you're looking to cover.

Here's a breakdown of the main policy types you'll come across when buying cover, along with what each one is designed to do and the key benefit it offers.

What are the disadvantages of life insurance?

We've looked at why life insurance can be important, but it's also worth understanding the downsides before you decide.

Some things to keep in mind:

• If you take out term life insurance, you could outlive the policy. If that happens, it simply ends - there's no payout.
• With whole of life insurance, taking out a policy at a young age could mean you end up paying in more than the payout is worth.
• The cost of your cover is based on your circumstances. If you're seen as high risk, your premiums may be higher.
• If you stop paying your premiums, your cover will end and no payout will be made.
• Before you buy a policy, take the time to read the small print and ask questions. It's the best way to make sure the cover really suits your needs.

Why is it important to get life insurance?

For people with families or other dependents, life insurance can offer financial support at a time when it's most needed.

It means your loved ones could keep up with important costs and hold onto some stability if you're no longer around to support them.

If you're thinking about taking out cover, we can help you compare options from leading insurers like Aviva, LV= and Legal & General - so you can find something that feels right for you and the people you care about.