Why is life insurance important? [Top 10 reasons]

Life insurance can provide valuable funds for your loved ones when they need it most.

It’s designed to provide a lump sum pay out upon your passing (within the policy term) which could allow your family to cover a multitude of essential living expenses and other costs.

No one wants to sit and think about their own mortality, but it’s necessary to think about what would need to be taken care of if you were no longer around.

Below are our 10 reasons you may want to consider taking out a life insurance policy:

  1. To provide for your children
  2. To pay for your funeral
  3. To pay off the mortgage
  4. To help with inheritance tax planning
  5. To cover any unpaid debts
  6. To leave a legacy
  7. You’re young and in good health
  8. To help if you become terminally ill
  9. You have no savings
  10. You want peace of mind

Keep reading as we explore these reasons in more detail…

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1. To provide for your children

It’s an incredibly sad statistic that a child loses a parent every 20 minutes in the UK[1].

If you worry about what would happen to your children if you were no longer around, taking out a life insurance policy could allow you to secure their financial future.

It’s estimated that the cost of raising a child to the age of 18 could cost £166,000 for a couple, rising to £220,000 for a lone parent[2].

Life insurance could help to cover many costs associated with raising a child, including:

  • A roof over their heads (plus the costs of running a household - heating, water etc)
  • Day-to-day living costs (food and drink, clothes, fuel)
  • Additional childcare costs (so your partner doesn’t have to reduce their hours or take time off)
  • School related costs (afterschool clubs, books, uniform, school trips, lunches, perhaps further education costs, etc)
  • Recreational costs (hobbies and days out)

2. To pay for your funeral

Funeral costs are steadily rising, with the cost of just a basic funeral now standing at £4,141 and the overall cost of dying at a whopping £9,658[3].

This is a large sum of money for your loved ones to find, especially unexpectedly.

A life insurance policy could allow your loved ones to cover the cost of your funeral, without having to dip into their own savings.

Most commonly, whole of life or over 50s plans (if you’re a UK resident in the 50 - 85 age bracket) are taken out to help protect funeral costs. This is because a pay out is guaranteed when you pass away.

3. To pay off the mortgage

With the average UK property costing around £290,000[4], a mortgage is likely to be the largest debt we incur in our lifetime.

Whether you’ve just stepped onto the property ladder or you’ve been a homeowner for some time, it’s important to consider whether your loved ones could afford to continue with mortgage payments without your income.

Depending on your current mortgage balance and the level of cover you secure (sum assured), life insurance could help to pay the mortgage off in full, relieving your loved ones of this large financial obligation and allowing them to remain in their home.

You could also choose to add an addition sum to help cover household bills and utilities, such as:

  • Gas
  • Electric
  • Water
  • Internet
  • Council tax

4. To help with inheritance tax planning

In the UK, inheritance tax is charged at 40% on any value that takes your estate over the threshold of £325,000.

Your estate is made up of any property, possessions and savings you own, therefore your estate could easily go over this threshold.

Your life insurance policy will also form part of your estate after your passing, unless it’s written in trust.

Writing your life insurance policy in trust could detach the pay out from your estate. Instead, a trustee (of your choosing) will be placed in charge of the pay out and will distribute the funds as per your wishes (similar to the executor of a Will).

This helps to minimise/avoid inheritance tax on the pay out.

Often, life insurance policies are written in trust with the aim of the funds covering any inheritance tax bills that are required on your estate.

5. To cover any unpaid debts

Thankfully, loved ones aren’t expected to repay debts in your name after your passing (unless they have acted as a guarantor or have co-signed on a loan/debt with you).

However, any unpaid debts will be taken from your estate, meaning your loved ones could miss out on funds you had intended for them.

If you were hoping the value of your estate would help loved ones to cover their living expenses, debts being taken could significantly reduce what they’re left with.

A life insurance pay out could help to recoup these funds.

6. To leave a legacy

A life insurance pay out doesn’t always have to be used to cover financial commitments.

You could choose to take out a policy to leave your loved ones with an inheritance to spend as they wish, or you could leave a donation to a charity that’s close to your heart.

7. You’re young and in good health

Being young, in good health and leading a healthy lifestyle can allow you to benefit from some of the cheapest life insurance rates.

While you may not have many financial commitments and/or a family to provide for as a young adult, it could be a great time to secure a policy.

Premiums tend to be cheaper the younger you are, this is because insurers perceive you as being less likely to make a claim.

Many policies include a ‘life changes clause’ or ‘guaranteed insurability option’ which allows you to make changes to your policy (such as increasing your cover amount) due to big life events happening (such as having a baby or moving to a bigger home).

So, even if you secure a policy at a young age, you could amend your policy when you reach these milestones (depending on your chosen insurer).

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8. To help if you become terminally ill

It could be possible to receive an early pay out if you become terminally ill during the term of your policy.

Most term life insurance policies include ‘terminal illness cover’, which is a free benefit that allows you to make an early claim on your policy if you’re diagnosed with a life-threatening illness and predicted to pass away within 12 months.

The pay out could help to cover end of life care, or simply be used to enjoy spending time with loved ones.

Furthermore, you could also choose to add ‘critical illness cover’ to your policy for an additional cost.

This can provide an early pay out if you’re diagnosed with a specific serious illness.

The pay out could help to cover lost income while you’re off work or cover private medical treatment.

9. You have no savings

Some people opt to put money aside in a savings account so, that on their passing, their loved ones will inherit these funds as part of their estate.

However, with the cost of everyday living rising, it could be hard to find the extra cash to put away. In fact, 34% of UK adults have either no savings or less than £1000 in a savings account[5].

Life insurance could provide a cheaper way for you to set aside some funds for your loved ones. For example, paying a £5 premium per month could be a more affordable option then putting £100 (or more) away into a savings account each month.

10. You want peace of mind

Ultimately, all of these things combined help to provide you with peace of mind that your loved ones are taken care of financially.

The future is unpredictable and being presented with unexpected costs is stressful enough, let alone during a bereavement.

By taking out a life insurance policy you can safeguard your loved ones and rest assured that they could continue with their current lifestyle should the worst happen.

Life insurance calculator

Now you know our reasons for taking out life insurance, why not fill in the fields which apply to you to find out how much cover you might need?

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk
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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk
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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk
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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk
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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org
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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk
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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net
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How can I buy a life insurance policy?

If you think you might benefit from life cover after reading our 10 reasons to buy life insurance, why not use our award-winning broker service to compare fee free quotes?

Through us, you can purchase a policy in the following ways:

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Our standard journey. We’ll take your circumstances into consideration and provide you with our most suitable options.

We can also support you through the application process and answer any questions you might have along the way.

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If you know exactly what policy and how much cover you need, you can apply for and purchase a policy online.

We currently offer the shortest online journey, with just 11 minutes from quote to cover ^ .

Whichever journey you opt for, you’ll be able to compare quotes from some of the best UK life insurance companies, completely free of charge.

All quotes are personalised to your needs and without obligation, so why not get started today?

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Frequently asked questions about life insurance:

What is life insurance?

Life insurance is a financial protection policy that can pay out a lump sum payment to your loved ones upon your passing.

You can choose between a range of policy types to find the right cover to meet your needs.

The price that you pay will be based on the type of policy you opt for and your personal circumstances.

Unpon your passing (during the policy term), your loved ones can make a claim on your policy and receive a pay out to help them over a range of key expenses and other costs.

How does life insurance work?

Life insurance works by providing a cash pay out to your loved ones if you pass away.

Your policy could be term based (level or decreasing term) or last for life (whole of life insurance or an over 50s plan).

You’ll need to pay a monthly life insurance premium to keep your cover valid. The price you pay will be based on your personal circumstances.

If you pass away while your policy is active, your loved ones can make a claim and receive the pay out.

For more information on how life insurance works in the UK, why not read our in-depth guide?

What does life insurance cover?

A life insurance pay out can help cover whatever your loved ones need it to.

Common uses for a life insurance pay out include:

  • Mortgage/rental costs
  • Household bills & utilities
  • Daily living costs
  • Funeral costs

Do I need life insurance?

If you have anyone that depends on you financially, you could benefit from having a life insurance policy in place.

If you were to pass away, the pay out could help to cover their living costs - ensuring they don’t have to make dramatic changes to their lifestyle at an already distressing time.

Sources:

[1] https://childhoodbereavementnetwork.org.uk/about/media-centre/evidence/key-statistics

[2] https://cpag.org.uk/sites/default/files/2024-02/Cost_of_a_child_2023_full.pdf

[3] https://www.sunlife.co.uk/siteassets/documents/cost-of-dying/sunlife-cost-of-dying-report-2024.pdf/

[4] https://www.moneyhelper.org.uk/en/blog/buy-or-rent-a-home/how-much-does-the-average-mortgage-cost

[5] https://www.money.co.uk/savings-accounts/savings-statistics

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