Are life insurance policies worth it?

Most people have a general idea about how life insurance policies work, but if asked about the details of their own life insurance policy, would probably struggle to name them. If you’re in this boat, you’re not alone.

Life insurance can be complicated and it’s this level of complication that can often lead to people not bothering to take a policy out at all. There are so many options to consider, so many decisions to make, and they all seem so crucially important to get right. Sometimes the easiest thing to do is just not to bother at all. 

If you find yourself in that place, here are some of the things you need to know about life insurance; what it is, what’s good about it, what’s not so good and crucially, is it worth having? 

Life insurance is useful if you have people who are dependent on you. If you have children, a spouse, or parents who look to you to provide for the household, then life insurance makes total sense.

What is life insurance?

Life Insurance, also known as Life Cover or Life Assurance refers to an insurance policy which can help protect your loved ones financially if you were to die.

There are many different types of life insurance policies available, all with their own terms and conditions.

In general however, in exchange for the payment of premiums, you can be guaranteed a payout in the event of your death which can help your partner or other loved ones pay for things like your mortgage, rent, living expenses and bills that could pile up if you were no longer around.

When should you get life insurance?

One of the main reasons people go for life insurance is because they have children and they wish to protect them from the financial implications of losing a parent. 

It may be the case that you do not have much by way of savings, or that yours is the main, or a very important income in the family.

Raising children costs a lot of money, and it is therefore important to think about how these costs would be covered if you were not around to contribute to the household finances. In these circumstances, it makes sense to get life insurance. By doing so, you are protecting your children against some of the most serious consequences – such as losing their home – that losing a parent would have on their living standards and household income. 

Of course, it is not only children and dependants who would be impacted financially if you were to die. It could be that you worry about how your partner would manage too, particularly if you have a joint mortgage or you rent jointly.

You and your partner may be completely financially independent, in which case it may be that you don’t need life insurance. However, if either one of you is dependent on the other’s income, then an insurance policy is an important precaution. At a time of already great suffering, you would not want your partner being forced to leave the home you shared, or having to give up the lifestyle you both enjoyed together, because they were struggling to make ends meet. 

A big reason for getting an insurance policy is to pay off a mortgage. It’s not always easy, or possible, to sell a house instantly if you need the money. Therefore, having the security of knowing your family members will be able to pay back the mortgage if they decide to stay, goes a long way towards helping them.

Reasons not to get life insurance 

The main drawback of taking out a life insurance policy is that it is not you who benefits from it. As life insurance is designed only to be paid out on your death (or in some cases if you are diagnosed with a terminal disease), unless you have someone you wish to financially benefit from your death, there is no direct gain to be taken from it. 

This means that if you are young, you do not have any dependants and you are not in a serious relationship, there is no reason for you to be putting your savings into a life insurance policy. It is far better to save your money in a way that will benefit you in years to come. 

Benefits of a life insurance policy

If you do decide to take out life insurance, there are various different plans available and it’s important to speak to a qualified independent financial adviser who can talk you through which scheme might be better for you.

Some have advantages over others but it is all dependent on various factors including your age and health, how much cover you require and how much you are able to pay in monthly premiums.

The main benefits of life insurance in general are;

  • Financial security for loved ones
  • It can reduce some of the distress and disruption of losing a parent or partner
  • It provides compensation for the loss of earnings into your household 
  • It can pay off debts, such as the mortgage
  • It can pay for funeral costs 
  • You can also insure against lost earnings in cases where you are critically ill 
  • Peace of mind that your loved ones will be looked after and not have money worries when you are gone

Does life insurance cost a lot?

Many people are afraid of signing up for insurance policies because they are afraid their budget won’t stretch to the cost of premiums. But generally, unless you have absolutely no money left in your pocket at the end of the month, it is possible to fit your life insurance premiums to your budget. 

As a general guide, for someone aged 25-30 years, you need to pay no more than around £30 per month to be covered for a £500,000 payout.  This amount of cover, for just £30 per month, could ensure stability and peace of mind for anyone who gets the benefit.

So is it really worth it?

In short, yes, but it depends on your circumstances in your life right now. 

Life insurance is useful if you have people who are dependent on you. If you have children, a spouse, or parents who look to you to provide for the household, then life insurance makes total sense. It is not a large monthly outgoing for cover which can bring you significant peace of mind and provide an important safety net. 

On the other hand, if you are living a single life and do not have any dependants, then it does not make sense to have a life insurance policy at this point in your life. It’s important therefore to assess your circumstances and ask who you need to look after and how they would manage financially if you were no longer around.  

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Who is the cover for?

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