Do I need life insurance, and what kind?

The question is not really 'do I need life insurance' but 'would anyone be financially worse off if I died, and by how much'. If nobody depends on your income and there is no debt attached to a home someone lives in, the answer may genuinely be no. That framing does more work than any comparison table.

Safety

Step by step

1. Work out who would be financially affected.A partner, children, anyone who relies on your income, or anyone who would have to sell a home to clear a mortgage. If the answer is nobody, the case for cover is weak.
2. Work out the shortfall, not a round number.Mortgage balance, plus what it would take to replace your income for the years it is needed, minus savings, minus any death-in-service benefit from your employer.
3. Check what you already have.Many employers provide death-in-service cover as a multiple of salary, and some pensions pay a lump sum. People frequently buy cover they already had.
4. Understand level term cover.A fixed amount for a fixed number of years. If you die within the term it pays out; if not, it pays nothing and that is the design, not a failure.
5. Understand decreasing term cover.The sum reduces roughly in line with a repayment mortgage. It is cheaper than level term and is intended to cover a debt rather than to leave money behind.
6. Understand whole-of-life cover.It pays out whenever you die, so it is substantially more expensive, and some versions have reviewable premiums that rise. It is usually bought for estate planning reasons rather than family protection.
7. Know how critical illness cover differs.It pays on diagnosis of specific defined conditions, not on death, and the definitions are narrow and specific. It is a different product often sold alongside.
8. Answer the medical questions completely.Non-disclosure is the main reason life claims are declined. If you are unsure whether something counts, disclose it — an insurer that knew and priced for it cannot use it later.
9. Ask about writing the policy in trust.It is usually free at the point of setting up the policy and it generally keeps the payout outside your estate, which can avoid delay from probate and may have inheritance tax implications. Ask the provider and take advice if the estate is complex.
10. Review it when life changes.A new mortgage, a child, a divorce, a large pay change. Cover set up for one situation quietly stops matching the next.

Tips

• Check your employer's death-in-service benefit before buying anything. For some households it is already most of the need.
• Writing the policy in trust is normally free and is the step most often missed. Ask the provider for their trust form.
• Buying cover younger and healthier is cheaper for the whole term, but buying cover you do not need is not a saving at any age.

Common mistakes

• Under-disclosing on the medical questions — It is the leading cause of declined life claims, and it is discovered precisely when the family is least able to fight it.
• Not writing the policy in trust — Without it the payout typically forms part of the estate, which can mean delay while probate is dealt with and possible inheritance tax consequences.

If it doesn't work

Questions people ask