Do I Really Need Life Insurance in the UK
"Do I really need life insurance?" It's a question many of us ask, often prompted by a major life event: a new baby, a first home, or the start of a new business venture. For some, it feels like an unnecessary expense. For others, it's a non-negotiable part of responsible financial planning.
The truth is, the answer isn't the same for everyone. It depends entirely on your personal circumstances, your financial responsibilities, and who relies on you. In this definitive guide, we'll demystify life insurance in the UK, helping you understand not just what it is, but why it matters and, crucially, whether it's right for you.
A guide to who benefits from life insurance and why it matters
At its core, life insurance is a contract between you and an insurer. You pay regular premiums, and in return, the insurer promises to pay out a tax-free lump sum (or regular income) to your loved ones if you pass away during the policy's term.
Think of it as a financial safety net for the people you leave behind. It's not for you; it's for them. It’s a way of ensuring that your financial obligations don’t become their burdens. From covering the mortgage to providing for daily living costs and future education, life insurance steps in to provide stability at a time of immense emotional distress.
According to the Association of British Insurers (ABI), in 2023, the protection insurance industry paid out over £6.85 billion in claims – that’s more than £18.7 million every single day. These aren't just statistics; they represent families kept in their homes, children's futures secured, and businesses saved from collapse.
What is Life Insurance, Exactly?
Before we delve into who needs it, let's break down the basic components in simple terms. Understanding these will make the rest of this guide much clearer.
- The Policyholder: This is you, the person who takes out the insurance policy and pays the premiums.
- The Premium: This is the regular payment you make to the insurer to keep the policy active. It can be paid monthly or annually.
- The Sum Assured: This is the amount of money that will be paid out if you die. You choose this amount when you take out the policy.
- The Term: This is the length of time the policy lasts. It could be a set number of years (e.g., 25 years to match a mortgage) or for your entire life.
- The Beneficiaries: These are the people (or the trust) you nominate to receive the payout.
The fundamental principle is simple: if the worst happens to you within the agreed term, your beneficiaries receive the sum assured, providing them with the financial support you're no longer there to give.
Who Typically Needs Life Insurance? Unpacking the Key Groups
While everyone's situation is unique, certain life stages and responsibilities make the need for life insurance particularly clear. If you fit into any of the following groups, it’s a conversation you should be having.
Parents and Guardian's: Protecting Your Children's Future
This is perhaps the most common and compelling reason to get life insurance. Raising a child is a long-term financial commitment. Research from the Child Poverty Action Group suggests the cost of raising a child to the age of 18 in the UK can exceed £166,000 for a couple.
If you were to pass away unexpectedly, how would your partner or guardian manage these costs?
- Day-to-day expenses: Food, clothing, and household bills.
- Childcare costs: Nursery, childminders, or after-school clubs.
- Education: From school trips to university fees.
- Hobbies and activities: Music lessons, sports clubs, and social events.
A life insurance payout can replace your lost income, ensuring your children’s lives can continue with as much stability and opportunity as possible. A popular option for parents is Family Income Benefit, which pays a regular, tax-free income to your family rather than a single lump sum, making it easier to manage long-term budgeting.
Homeowners with a Mortgage: Securing Your Family's Home
For most UK families, the mortgage is their single largest financial outgoing. According to UK Finance, the average outstanding mortgage for a UK homeowner in 2024 stood at approximately £145,000.
What would happen to your home if you died? If you have a joint mortgage, the entire debt would fall to your surviving partner. If you are the sole earner, your family could face the devastating prospect of having to sell their home during an already difficult time.
This is where Decreasing Term Life Insurance (often called mortgage protection insurance) is invaluable. The sum assured is designed to decrease over time, roughly in line with your outstanding mortgage balance. It's one of the most affordable types of cover because the potential payout reduces each year. It provides peace of mind that your family's home is safe, no matter what.
Couples and Civil Partners: Supporting Your Other Half
Even if you don't have children or a mortgage, life insurance can be vital if your partner relies on your income to maintain their standard of living. This is particularly true if there's a significant disparity in your earnings.
Consider these questions:
- Could your partner cover all the household bills (rent, utilities, council tax) on their own?
- Would they be able to manage car payments, credit card debts, or personal loans?
- Would their quality of life have to be drastically reduced?
A Level Term Life Insurance policy can provide a fixed lump sum that allows your partner to grieve without the immediate pressure of financial collapse. It gives them breathing room to adjust to a new financial reality.
Business Owners & Company Directors: Safeguarding Your Enterprise
For entrepreneurs, the lines between personal and business finances are often blurred. The loss of a key individual can have a catastrophic impact on a business.
- Key Person Insurance: This protects a business against the financial loss it would suffer from the death or critical illness of a vital employee or director. The payout goes to the company, providing funds to recruit a replacement, cover lost profits, or reassure lenders.
- Shareholder or Partnership Protection: If a business owner dies, what happens to their shares? Often, their family inherits them. They may have no interest in running the business and wish to sell, but the remaining owners may not have the capital to buy them out. Shareholder protection provides the funds for the surviving owners to purchase the deceased's shares, ensuring business continuity.
- Executive Income Protection: A tax-efficient way for a limited company to provide an income for an employee or director if they're unable to work due to illness or injury. Premiums are typically a business expense, making it a highly valuable benefit.
If you're a director or business owner, these specialised policies are as crucial as your public liability or professional indemnity insurance.
The Self-Employed and Freelancers: Creating Your Own Safety Net
When you work for yourself, you lose the safety net of employee benefits like death-in-service cover or company sick pay. You are your own financial engine. If that engine stops, the income stops too.
Life insurance is a cornerstone of a freelancer's financial plan. It ensures that your personal financial commitments—from rent and bills to family support—are covered. This is often combined with Income Protection and Critical Illness Cover to create a comprehensive shield against loss of earnings, whether through death, illness, or injury.
Individuals with Significant Debts: Preventing a Financial Burden
Beyond a mortgage, many people have other debts, such as car finance, personal loans, or large credit card balances. When you die, these debts don't just disappear. They become part of your estate. If your estate doesn't have enough assets to cover them, creditors can pursue payment, potentially forcing the sale of family assets.
A simple life insurance policy can be set up to clear these debts, ensuring your loved ones aren't left picking up the financial pieces.
Those Planning for Inheritance Tax: The Role of Gift Inter Vivos
Inheritance Tax (IHT) can be a significant concern for those with larger estates. One common strategy is to gift assets during your lifetime. However, if you die within seven years of making a substantial gift, it may still be subject to IHT.
A Gift Inter Vivos insurance policy is a specific type of term life insurance designed to cover this potential tax liability. It's a whole of life policy with a sum assured that decreases over seven years, mirroring the "taper relief" rules of IHT. It ensures your beneficiaries receive the full value of your gift, without an unexpected tax bill.
When Might You Not Need Life Insurance?
While life insurance is vital for many, it's not a universal necessity. A balanced view is important. You might not need it if:
- You have no financial dependents: If nobody relies on you financially, there is no income to replace or debt for others to inherit. A single person with no children and no major debts may not need cover.
- You are financially independent: If you have substantial savings, investments, or pension funds that would be more than sufficient to support your dependents and clear any debts, a separate life insurance policy may be redundant.
- You are a child or young adult with no commitments: With no dependents, mortgage, or significant debts, life insurance is unlikely to be a priority. However, taking out a policy at a young age can lock in very low premiums for the future.
- Your partner is a high-earner: If your partner earns enough to comfortably manage all financial obligations on their own, the need for cover may be reduced, though not necessarily eliminated.
It's about dependency. If your death would cause financial hardship for someone else, you should seriously consider life insurance.
The Different Types of Life Insurance Explained
The UK market offers a variety of products tailored to different needs and budgets. Understanding the main types is key to making the right choice.
Term Life Insurance: The Most Common Choice
This is the simplest and most affordable form of life insurance. It covers you for a fixed period (the "term"), such as 25 years. If you die within this term, it pays out. If you survive the term, the policy ends, and there is no payout.
| Type of Term Insurance | How it Works | Best For |
|---|---|---|
| Level Term | The sum assured remains the same throughout the policy term. | Covering interest-only mortgages, providing for dependents, replacing income. |
| Decreasing Term | The sum assured reduces over the term, usually in line with a repayment mortgage. | Covering a repayment mortgage or other loan that is being paid off. |
| Family Income Benefit | Pays a regular, tax-free income from the point of claim until the policy end date. | Providing a replacement salary for family budgeting, especially with young children. |
Whole of Life Insurance: Lifelong Coverage
As the name suggests, this policy covers you for your entire life. As long as you keep paying the premiums, a payout is guaranteed when you die. Because the payout is certain, premiums are significantly higher than for term insurance.
Whole of Life policies are often used for:
- Inheritance Tax (IHT) planning: Providing a lump sum to pay the IHT bill on your estate.
- Leaving a guaranteed legacy: Ensuring a specific amount of money is left to your children or a charity.
- Covering funeral costs: Providing funds to cover funeral expenses, which average over £4,000 in the UK.
Over 50s Life Insurance: A Guaranteed Acceptance Option
This is a type of whole of life policy aimed at UK residents aged 50-85. Acceptance is guaranteed without any medical questions. The trade-off is that premiums are higher relative to the sum assured, and there's usually an initial period (typically 12-24 months) where if you die from natural causes, the insurer will only refund the premiums paid rather than the full payout.
Beyond Life Insurance: A Look at Associated Protection Policies
Life insurance is about what happens when you die. But what happens if you become seriously ill or injured and can't work? A comprehensive protection plan often includes other types of cover.
Critical Illness Cover (CIC)
This pays out a tax-free lump sum if you are diagnosed with one of a list of specific serious illnesses, such as some types of cancer, heart attack, or stroke. The payout is designed to help you financially while you recover. You could use it to:
- Clear your mortgage or other debts.
- Pay for private medical treatment.
- Adapt your home.
- Replace lost income for a period.
CIC can be bought as a standalone policy or, more commonly, combined with life insurance.
Income Protection (IP)
Often described by experts as the most important protection policy of all, Income Protection pays a regular monthly income if you are unable to work due to any illness or injury. It continues to pay out until you either return to work, the policy term ends, or you pass away.
Unlike CIC, it covers a vast range of conditions – from a bad back preventing a builder from working, to stress and mental health issues affecting an office worker.
Personal Sick Pay
This is a type of short-term income protection, often favoured by tradespeople and those in riskier jobs like nurses and electricians. It typically pays out for a maximum of 12 or 24 months per claim and often has shorter "deferred periods" (the time you have to be off work before the policy starts paying).
| Protection Type | What it Covers | Payout Type |
|---|---|---|
| Life Insurance | Death during the policy term. | Lump sum or regular income. |
| Critical Illness Cover | Diagnosis of a specified serious illness. | One-off lump sum. |
| Income Protection | Inability to work due to any illness/injury. | Regular monthly income. |
At WeCovr, we help our clients navigate these options, building a protection portfolio that covers multiple eventualities, not just death. We understand that protecting your ability to earn is just as important as protecting your family after you're gone.
How Much Life Insurance Do I Need? A Practical Calculation
There's no magic number. The right amount of cover is unique to you. A common rule of thumb is to seek cover of around 10 times your annual income, but a more detailed approach is better.
A great method is D.I.M.E:
- D - Debts: Total up all your debts, excluding your mortgage. This includes personal loans, car finance, and credit card balances.
- I - Income: How many years of your annual salary would your family need to replace? Consider how long your children will be dependent. If your partner works, you might need to replace a smaller portion of your income.
- M - Mortgage: What is the outstanding balance on your mortgage? You'll want to ensure this is cleared.
- E - Education: Do you want to provide for your children's future education, such as university fees? A typical figure to set aside might be £30,000-£50,000 per child.
Sum Assured = D + I + M + E
This calculation gives you a solid starting point. An expert broker can help you refine this figure based on your specific circumstances, existing savings, and any death-in-service benefits you may have from your employer.
Factors That Influence Your Life Insurance Premiums
Insurers are assessing risk. The higher your risk of dying during the policy term, the higher your premium will be. Key factors include:
- Age: The younger you are when you take out a policy, the cheaper it will be.
- Health: Your current health, weight, and any pre-existing medical conditions are crucial.
- Medical History: Your personal and even your immediate family's medical history will be considered.
- Lifestyle: Smokers and vapers can expect to pay significantly more (often double) than non-smokers. Your alcohol consumption is also a factor.
- Occupation: A desk-based job carries less risk than being a scaffolder or a deep-sea diver.
- Hobbies: High-risk hobbies like mountaineering or motorsport can increase your premiums.
- The Policy: The type of cover (Term vs. Whole of Life), the sum assured, and the length of the term all directly impact the cost.
The good news is that you have control over some of these factors. Quitting smoking, reducing alcohol intake, and improving your general health and fitness can lead to lower premiums. We're passionate about helping our clients lead healthier lives, which is why at WeCovr, we provide our customers with complimentary access to our AI-powered calorie tracking app, CalorieHero, to support them on their wellness journey.
Navigating the Application Process: What to Expect
Applying for life insurance in the UK is a straightforward but thorough process.
- Initial Quotation: You'll provide basic details (age, smoking status, cover amount, term) to get an initial price.
- Full Application: You'll complete a detailed application form, which includes comprehensive questions about your health, lifestyle, and medical history.
- Underwriting: This is the insurer's risk assessment process. They will review your application. They may:
- Accept your application on standard terms.
- Request a medical report from your GP.
- Ask you to attend a medical examination with a nurse (for very large cover amounts or if you have specific health issues).
- Offer you cover but with an increased premium (a "loading") or with an exclusion for a specific medical condition.
- Postpone or decline your application in rare cases.
- Policy Issued: Once underwriting is complete and you are accepted, you agree to the terms, set up your Direct Debit, and your cover begins.
Honesty is the best policy. It is absolutely critical that you are completely truthful on your application. Non-disclosure of a material fact (like a past illness or that you smoke) could invalidate your policy, meaning your family would receive nothing when they need it most.
The Power of a Broker: Why Expert Guidance Matters
You can buy life insurance direct from an insurer, via a comparison website, or through an expert adviser or broker. While comparison sites are useful for a quick price check, they can't provide the crucial advice that ensures you're buying the right policy.
This is where a broker like WeCovr comes in.
- Expert Advice: We take the time to understand your unique circumstances, helping you calculate the right level of cover and choose the most suitable product.
- Market Access: We can compare policies and prices from a huge panel of major UK insurers, not just the few on a comparison site, finding you the best terms for your specific needs.
- Help with Applications: We know what insurers look for. We can help you complete your application accurately, pre-empting potential issues and improving your chances of getting accepted on the best possible terms.
- Support for Complex Cases: If you have a pre-existing medical condition or a high-risk job, a broker's expertise is invaluable in finding a specialist insurer who will offer you cover.
- Trust and Claims: We help you write your policy into trust, ensuring the payout is fast, tax-efficient, and goes to the right people. If a claim needs to be made, we're there to support your family through the process.
Using a broker doesn't cost you more; in fact, our expertise can often save you money by finding the most competitive policy for your situation. We do the hard work for you, providing peace of mind that you have the right protection in place.
Frequently Asked Questions (FAQs)
Is the payout from a UK life insurance policy tax-free?
What does writing a life insurance policy 'in trust' mean?
Can I have more than one life insurance policy?
What happens if I stop paying my life insurance premiums?
Do I always need a medical exam to get life insurance?
Does life insurance cover death by suicide?
Why life insurance and how does it work?
What is Life Insurance?
Life insurance is an insurance policy that can provide financial support for your loved ones when you or your joint policy holder passes away. It can help clear any outstanding debts, such as a mortgage, and cover your family's living and other expenses such costs of education, so your family can continue to pay bills and living expenses. In addition to life insurance, insurance providers offer related products such as income protection and critical illness, which we will touch upon below.How does it work?
Life insurance pays out if you die. The payout can be in the form of a lump sum payment or can be paid as a replacement for a regular income. It's your decision how much cover you'd like to take based on your financial resources and how much you'd like to leave to your family to help them deal with any outstanding debts and living expenses. Your premium depends on a number of factors, including your occupation, health and other criteria.The payout amount can change over time or can be fixed. A level term or whole of life policy offers a fixed payout. A decreasing term policy offers a payout that decreases over the term of the cover.
With critical illness policies, a payout is made if you’re diagnosed with a terminal illness with a remaining life expectancy of less than 12 months. While income protection policies ensure you can continue to meet your financial commitments if you are forced to take an extended break from work. If you can’t work because you’ve had an accident, fallen sick, or lost your job through no fault of your own, income protection insurance pays you an agreed portion of your salary each month.
Income protection is particularly helpful for people in dangerous occupations who want to be sure their mortgage will always be covered. Income protection only covers events beyond your control: you’re much less likely to be covered if you’re fired from your job or if you injure yourself deliberately.
Questions to ask yourself regarding life insurance
Just ask yourself:👉 Who would pay your mortgage or rent if you were to pass away or fall seriously ill?
👉 Who would pay for your family’s food, clothing, study fees or lifestyle?
👉 Who would provide for the costs of your funeral or clear your debts?
👉 Who would pay for your costs if you're unable to work due to serious illness or disability?
Many families don’t realise that life, income protection and critical illness insurance is one of the most effective ways to protect their finances. A great insurance policy can cover costs, protect a family from inheriting debts and even pay off a mortgage.
Many would think that the costs for all the benefits provided by life insurance, income protection insurance or critical illness insurance are too high, but the great news is in the current market policies are actually very inexpensive.
Benefits offered by income protection, life and critical illness insurance
Life insurance, income protection and critical illness insurance are indispensable for every family because a child loses a parent every 22 minutes in the UK, while every single day tragically 60 people suffer major injuries on the UK roads. Some people become unable to work because of sickness or disability.Life insurance cover pays out a lump sum to your family, loved ones or whomever you choose to get the money. This can be used to secure the financial future of your loved ones meaning they would not have to struggle financially in the event of your death.
If it's a critical illness cover, the payout happens sooner - upon diagnosis of a serious illness, disability or medical condition, easing the financial hardship such an event inevitably brings.
Income protection insurance can be very important for anyone who relies on a pay check to cover their living costs, but it's especially important if you’re self-employed or own a small business, where your employment and income is a bit less stable. It pays a regular income if you can't work because of sickness or disability and continues until you return to paid work or you retire.
In a world where 1 in 4 of us would struggle financially after just four weeks without work, the stark reality hits hard – a mere 7% of UK adults possess the vital shield of income protection. The urgency of safeguarding our financial well-being has never been more palpable.
Let's face it – relying on savings isn't a solution for everyone. Almost 25% of people have no savings at all, and a whopping 50% have £1,000 or less tucked away. Even more concerning, 51% of Brits – that's a huge 27 million people – wouldn't last more than one month living off their savings. That's a 10% increase from 2022.
And don't even think about state benefits being a safety net. The maximum you can expect from statutory sick pay is a mere £109.40 per week for up to 28 weeks. Not exactly a financial lifeline, right?
Now, let's tackle a common objection: "But I have critical illness insurance. I don't need income protection too." Here's the deal – the two policies apply to very different situations. In a nutshell:
- Critical illness insurance pays a single lump sum if you're diagnosed with or undergo surgery for a specified potentially life-threatening illness. It's great for handling big one-off expenses or debts.
- Income protection, on the other hand, pays a percentage of your salary as a regular payment if you can't work due to illness or injury. It's the superhero that tackles those relentless monthly bills.
Types of life insurance policies
Common reasons for getting a life insurance policy are to:✅ Leave behind an amount of money to keep your family comfortable
✅ Protect the family home and pay off the mortgage in full or in part
✅ Pay for funeral costs
Starting from as little as a couple of pounds per week, you can do all that with a Life Policy.
Level Term Life Insurance
One of the simplest forms of life insurance, level term life insurance works by selecting a length of time for which you would want to be covered and then deciding how much you would like your loved ones to receive should the worst happen. Should your life insurance policy pay out to your family, it would be in a lump sum amount that can be used in whatever way the beneficiary may wish.
Decreasing Term Life Insurance
Decreasing term life insurance works in the same way as level term, except the lump sum payment amount upon death decreases with time. The common use for decreasing term life cover is to protect against mortgage repayment as the lump sum decreases along with the principal of the mortgage itself.
Increasing Term Life Insurance
Increasing term life insurance aims to pay out a cash sum growing each year if the worst happens while covered by the policy. With increasing term life cover amount insured increases annually by a fixed amount for the length of the policy. This can protect your policy's value against inflation, which could be advantageous if you’re looking to maintain your loved ones’ living standards, continue paying off your mortgage in line with its repayment schedule and cover your children’s education fees.
Whole of Life Insurance
Whereas term life insurance policies only pay out if you pass away during their term, whole of life insurance pays out to your beneficiaries whenever this should happen. The most common uses for whole life insurance are to cover the costs of a funeral or as a vehicle for your family's inheritance tax planning.
Family Income Benefit
Family income benefit is a somewhat lesser-known product in the family of life insurance products. Paying out a set amount every month of year to your beneficiaries, it is the most cost-effective way of maintaining your family's living standards to an age where you'd expect them to be able to support themselves financially. The most common use would be for a family with children who are not working yet so are unable to take care of themselves financially.
Relevant Life Insurance
Relevant Life Insurance is a tax-efficient policy for a director or single employee. A simple level term life insurance product, it is placed in a specific trust to ensure its tax efficiency. The premiums are tax deductible and any benefit payable should a claim arise is also paid out tax free, which makes it an attractive product for entrepreneurs and their businesses.
Important Fact!
We can look at a more suitable option mid-term!
Why is it important to get life insurance early?
👉 Many people are very thankful that they had their life, income protection, and critical illness insurance cover in place before running into some serious issues. Critical illness and income protection insurance is as important as life insurance for protecting your family's finances.👉 We insure our cars, houses, bicycles and even bags! Yet our life and health are the most precious things we have.
Easily one of the most important insurance purchases an individual or family can make in their lifetime, the decision to buy life, income protection, critical illness and private medical health insurance can be made much simpler with the help of FCA-authorised advisers. They are the specialists who do the searching and analysis helping people choose between various types of life insurance policies available in the market, including income protection, critical illness and other types of policies most suitable to the client's individual circumstances.
It certainly won't do any harm if you speak with one of our experienced FCA-authorised insurance partner experts who are passionate about advising people on financial matters related to life insurance and are keen to provide you with a free consultation.
You can discuss with them in detail what affordable life, income protection, critical illness or private medical health insurance plan for the necessary peace of mind they would recommend! WeCovr works with some of the best advisers in the market.
By tapping the button below, you can book a free call with them in less than 30 seconds right now:
Our Group Is Proud To Have Issued 800,000+ Policies!
We've established collaboration agreements with leading insurance groups to create tailored coverage
How It Works
1. Complete a brief form
2. Our experts analyse your information and find you best quotes
3. Enjoy your protection!
Any questions?
Learn more
Who Are WeCovr?
WeCovr is an insurance specialist for people valuing their peace of mind and a great service.👍 WeCovr will help you get your private medical insurance, life insurance, critical illness insurance and others in no time thanks to our wonderful super-friendly experts ready to assist you every step of the way.
Just a quick and simple form and an easy conversation with one of our experts and your valuable insurance policy is in place for that needed peace of mind!