Not everyone needs life insurance. However, if you are uncertain and you are wondering whether you need life insurance or not, then read on.
The point of life cover is to provide for your beneficiaries in the event of your death. Therefore, passing away without the necessary life insurance can have dire consequences for the people you leave behind.
Who needs it?
Basically, you will need it if you have any kind of ongoing commitment that depends on you staying alive. Such commitments fall into two basic categories:
Anyone who is financially dependent on you, including a partner, children or an elderly relative.
A major financial responsibility, the most common being a mortgage or a business.
However, if you are unsure as to how your funeral expenses will be paid for, even if you don’t have any ongoing commitments, then you may also need it.
Who doesn’t need it?
You may not need life insurance if you are one or more of the following:
Single and have no dependents
Living as a dependent (e.g. you live off your partner’s income)
On a low income or eligible for state benefits
How much should I get?
So, you have established that you need life insurance. You will now have to think about your personal requirements.
There are several different formulas available that will work out how much life insurance you require. These formulas are designed to give a rough estimate only.
Once you have a rough idea of what you need, it’s worth consulting a financial advisor who will be able to help you further.
What type should I get?
You will need to decide on which type of life insurance is suitable for your circumstances. There are two basic types of cover.
Term cover will insure you for a designated period of time. If you die within the period covered by the policy, the insurance company will pay out. If you die after the end of the period, they won’t pay anything.
You could use this type of life insurance to cover you over the term of your mortgage, for example. So, if you are in this situation and you are wondering whether life insurance is right for you, the answer may be yes, but only for a specific period.
Whole of life cover
Whole of life cover will insure you for the entirety of your life and will offer beneficiaries a guaranteed pay out.
How much will it cost?
Life insurance can be good value for money, but the cost can vary. This will depend on several factors including the following:
How healthy you are
What your lifestyle is like
Whether you smoke
The length of the policy
The amount of money that will be paid out in the event of your death
Further information on life insurance is available from the Money Advice Service.
It is worth consulting a financial adviser or a solicitor if you have any doubts about the type of life insurance you require.
If you are considering life insurance, think about treating it as part of a larger estate planning process. That way, you won’t leave a financial mess behind that your beneficiaries have to deal with.
If you’re looking for more ways to make your money work for you, why not sign up for MyWalletHero’s email newsletter? You’ll receive our team’s top money-saving tips, lifestyle hacks and handy personal finance ‘must-knows’ – delivered straight to your inbox…
Just enter your email address below to sign up now:
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.