Guides

All of our content is approved by our in-house expert advisory panel.

Whether you’re starting a family or buying a first home, certain milestones in life could prompt you to buy life insurance. It aims to provide your loved ones with financial stability should you pass away.

If you’re approaching a new stage in your life, you may ask yourself ‘Why do I need life insurance?’ While there’s no universal answer, this guide will highlight some of the reasons people buy life insurance to help you make an informed decision.  

Why buy life insurance?

Nobody wants to contemplate a time when they’re no longer around, and life insurance can make things easier for those left behind. It provides your chosen beneficiaries with a financial payout which can be used towards their living expenses and pay off mortgages, education fees, medical bills, funeral costs, and any outstanding debt they may become responsible for.

Even if you’re financially comfortable and have no outstanding debts, life insurance allows you to provide some financial security to look after your loved ones when you pass away. Depending on whether you wish to leave a lump sum to pay for your family’s future living expenses or a smaller amount to cover your funeral costs, life insurance can provide comfort and peace of mind.

What is a life insurance policy?

It’s a contract between you and an insurance provider where you pay regular premiums and, in return, the insurer pays a one-off lump sum to your chosen beneficiaries if you pass away during the term of the policy.

People often buy life insurance when significant events occur such as a wedding or property purchase. While there’s no right or wrong time to take out life insurance, there are age requirements to taking out a policy. For example, you can buy life insurance with LV= any time between the ages of 17 and 84. The monthly cost of life insurance tends to be less the younger you are when you take it out.

Who needs life insurance?

Your employer may offer a death in service policy, or you may have savings, investments, assets, or a pension plan to cover your outgoings and any outstanding mortgage or other borrowing. But if you don’t, or what you do have won’t stretch very far, then life insurance may help you and your chosen beneficiaries.

Life insurance can replace lost income in the event of your death. It helps protect your loved ones from the financial losses and hardship that could arise if something happens to you. Life insurance can benefit many people such as those who are financially dependent on you, as well as your children. 

Why do you need life insurance?

You can determine whether life insurance is good for you by considering your financial obligations. Who would become responsible for any debts in the event of your death? What financial impact would this have on those you leave behind? Could they maintain the same standard of living, keep up with mortgage payments, or even pay for energy bills if the income you provide is suddenly taken away? 

Below are some common reasons people take out a life insurance policy. 

1. Buying a new property

If you pass away before your mortgage is repaid, the responsibility for any outstanding payments could fall on others. You can ensure your loved ones can meet these obligations after you’ve gone through mortgage life insurance.  

Both level term life insurance and decreasing term life insurance can help others meet any remaining mortgage commitments. Which option is best for you depends on whether you have a repayment mortgage or other significant reducing debt, or if you have an interest-only mortgage.

Decreasing term life insurance is usually cheaper than level cover because the payout decreases over time which is popular with mortgage holders, as the payout usually reduces in line with their mortgage balance.

With level cover, the regular monthly cost tends to be higher than a decreasing policy as the amount of cover stays the same over the duration (term) of the policy. . You can find out more about level term life insurance along with decreasing term life insurance, and why they may be a consideration for you, on our types of life insurance page. 

2. Getting married

If you and your partner are ready to tie the knot or just married, life insurance can help to ensure you’re both covered in the unfortunate event that one of you passes away. It allows you to provide some financial security to your spouse to help secure their future well-being after you’ve gone. 

Couples typically choose from two types of life insurance policies – single life cover or joint life cover. 

• Single life cover: this only covers you 
• Joint life cover: this covers both you and your partner 

A joint policy pays out when one of you dies and is usually cheaper to buy than two separate single policies. However, following death, the surviving partner would no longer be covered by a joint policy and would need to take out a single policy of their own. 

Two single life policies will ensure a pay out when each partner passes away. This can be beneficial in the event of a relationship breakdown as each policy would continue on an individual basis.

There are advantages and disadvantages to both types of term life cover, and it’s important to understand that some insurance providers may be unable to split a joint policy into two single policies should your relationship come to an end. Not only that, but if one of you passes away and a claim is made on a joint policy, the remaining life could be more expensive to insure with a single policy when you’re older. It’s likely to be more expensive as life insurance premiums generally increase in line with the policyholder’s age.

3. Having children

People often consider life insurance when their first child arrives, or their family expands. From childcare costs to university fees, raising children is expensive, and you may want to secure their future in the event of your death, by taking out a life insurance policy. 

Many life insurance providers offer policies that continue until your child reaches maturity. For example, it could provide them with a one-off payout when they reach the age of 18 or even later in life if that’s what you decide. 

Level cover and increasing cover life insurance both pay out a lump sum if you pass away within the term of your policy. They’re designed to leave behind a sum of money for your children’s future, rather than a policy designed to pay off debts, mortgages, and other financial obligations you may have. The amount of cover from a level cover life insurance will stay the same over the length of the policy, but won’t keep up with the effect of inflation. This means it will buy less in the future, than it can today.

Increasing cover life insurance increases by either a set amount each year, or by the Retail Prices Index, and the amount of cover aims to keep pace with rising prices in the future. The monthly cost will also increase each time the amount of cover goes up. LV= offers increasing cover life insurance through independent financial advisers only (you can’t buy it directly from us).

4. Planning a funeral

Funerals can be a significant expense, and you may not wish to pass this on to those you leave behind in the event of your death. Over 50s life insurance can help to pay the cost of your funeral and relieve your loved ones of this financial burden.  

Over 50s life cover is often cheaper than other types of life insurance as the payout is typically lower. While over 50s insurance policies can provide you with cover for the rest of your life, they are designed to help fund specific costs like funerals or provide a modest but guaranteed payout for your chosen beneficiaries. 

5. Inheritance tax challenges

Inheritance tax is another reason people take out a life insurance policy. Inheritance tax bills can run into many thousands of pounds and significantly reduce the amount your children inherit. 

Some providers offer life insurance policies that cover the inheritance tax bill, so your chosen beneficiaries can enjoy the full amount that you intended to give them. Similarly, you can also put your life insurance policy into a trust to reduce the amount of inheritance tax your estate may be liable for after your death.

Trusts are legal arrangements that allow the ‘owner’ of something such as property, shares, or a life insurance policy to gift ownership to someone else to look after it. However, trusts have many legal obligations and are often irreversible. Therefore, once your life insurance policy has been placed in a trust, it’s unlikely that you’ll be able to reverse the decision further down the line. If you’re unsure whether a trust is right for you, please make sure you speak to a financial adviser.

6. Peace of mind

As you age, the desire to ensure your loved ones are financially protected when you die grows stronger. While the years advance and circumstances change, many people shift their focus to providing security for the next generation with a life insurance policy. 

Age, ill health, and other factors can force you to reassess your priorities to ensure your chosen beneficiaries are financially looked after. That way, you’ll have peace of mind that those closest to you will be taken care of and can maintain their standard of living, pay off any debts, cover funeral expenses, and enjoy financial security for many years to come.

When is life insurance not essential?

Life insurance offers financial protection for many people, but not everyone. For instance, life insurance may not be necessary if you’re single with no dependents, or if your partner and dependents are financially secure in their own right, and do not rely on your income.

In some cases, other types of insurance may be more suitable such as income protection which offers peace of mind if you’re unable to work due to an accident or ill health.

Critical illness cover also provides a fixed sum payment to protect your home, family, and lifestyle if you’ve been affected by a life-changing condition such as cancer, stroke, or heart disease. Each insurer will list the conditions and specify the illnesses they cover.

Do you need life insurance?

LV= life insurance starts from as little as £5 per month. Our life insurance gives you free access to LV= Doctor Services, which provides expert medical services for you to use from the day your policy starts. As well as access to a Legal Advice Line and other member benefits.

Contact LV= now for a quote or to discuss your policy and requirements.