Life Insurance Explained: Do You Really Need It?

What you need to know in 30 seconds:

• Who needs it: Anyone with dependents, a mortgage, or debts that would burden family
• Two main types: Level term (fixed payout) and decreasing term (reduces over time, cheaper for mortgages)
• How much cover: 10x your salary or enough to clear mortgage + replace income
• Cost: Non-smoker in 30s can get £300k cover for £20-30/month
• Add critical illness: Extra protection if you can't work due to serious illness
• Buy young: Premiums are cheapest when you're younger and healthier

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Look, I get it—life insurance isn't exactly the most cheerful topic. But neither is leaving your family financially stranded. So let's have the conversation your future self will thank you for...

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Whether you're in Yeovil, Sherborne, Dorchester, or Chard, life insurance is one of those financial products that most people know they probably should have, but keep putting off. It forces us to think about our own mortality, and let's face it—that's not pleasant.

But here's the reality: if anyone depends on your income, life insurance could be the difference between financial security and financial disaster for those you leave behind. Families across Somerset, Dorset, and Devon rely on life insurance to protect their homes and loved ones.

This guide explains everything you need to know about life insurance in straightforward terms, helping you decide if you need it and, if so, what type and how much.

Life insurance is a contract between you and an insurance company. You pay regular premiums, and in return, if you die during the policy term, the insurer pays a lump sum (the "sum assured") to your chosen beneficiaries.

That money can be used to:

• Pay off the mortgage
• Replace your income
• Cover funeral costs
• Fund children's education
• Maintain your family's standard of living

Think of it as a financial safety net for the people who depend on you.

Not everyone needs life insurance. Here's a simple test:

You probably NEED life insurance if:

✓ You have children or other dependants ✓ You have a mortgage or significant debts ✓ Your family relies on your income ✓ Your partner couldn't afford the bills without your income ✓ You run a business with partners or key employees ✓ You want to leave an inheritance

You probably DON'T need life insurance if:

✗ You have no dependants ✗ You have substantial savings/investments to cover all debts and expenses ✗ Nobody relies on your income ✗ You're retired with adequate pension income ✗ Your employer provides sufficient cover

Let's look at a real-world example:

Sarah, 35, has:

• £250,000 mortgage
• Two children (aged 5 and 7)
• Household income: £60,000 (she earns £35,000, partner earns £25,000)

If Sarah dies without life insurance:

• Her partner's income alone can't cover the mortgage and childcare
• They'd likely have to sell the house
• The family would face significant financial hardship
• Children's futures (education, opportunities) would be affected

With £300,000 life insurance:

• Mortgage paid off completely
• £50,000 remaining for childcare, education, and living costs
• Partner can maintain their home and standard of living
• Children's lives disrupted emotionally but not financially

Cost of cover: Around £12-£18 per month for 25 years.

The most common and affordable type. It covers you for a specific period (the "term")—usually 10, 20, or 25 years.

How it works:

• If you die during the term → Payout
• If you survive the term → No payout, cover ends

Types of term insurance:

Level Term

The payout amount stays the same throughout the policy.

Best for:

• Leaving a lump sum for your family
• Covering funeral costs
• Funding children's education
• Replacing lost income

Example: £250,000 payout for 25 years

Decreasing Term

The payout reduces over time, typically in line with a repayment mortgage.

Best for:

• Covering a repayment mortgage (the cheapest option for this)

Example: £250,000 reducing to £0 over 25 years

Increasing Term

The payout increases annually (usually by a fixed percentage or in line with inflation).

Best for:

• Long-term income replacement
• Protecting against inflation

Example: £200,000 increasing by 3% per year for 25 years

Cost: Term insurance is typically the most affordable option, especially for younger, healthier applicants.

Covers you for your entire life, not just a set term. It's guaranteed to pay out eventually (assuming you keep paying premiums).

How it works:

• Premiums paid for life (or until a set age like 90)
• Guaranteed payout whenever you die
• Often includes an investment element

Best for:

• Leaving an inheritance
• Covering inheritance tax
• Funeral costs
• Those with lifelong dependants (e.g., disabled children)

Cost: Significantly more expensive than term insurance, often 5-10x the cost.

A type of whole of life insurance with no medical questions asked.

How it works:

• Anyone aged 50-80 (sometimes 85) can apply
• No medical underwriting
• Fixed premiums
• Guaranteed acceptance
• Usually small payouts (£5,000-£25,000)

Best for:

• Covering funeral costs
• Those with health conditions who can't get standard cover
• Older individuals seeking simple, guaranteed cover

Drawbacks:

• Expensive for the cover provided
• Total premiums may exceed the payout if you live long enough
• No payout if you die within the first year or two (usually)

Instead of a lump sum, this pays a regular tax-free income to your family for the remainder of the policy term.

How it works:

• You die during the term → Monthly income paid until term ends
• Example: £2,000 per month for the remaining years

Best for:

• Families who need regular income more than a lump sum
• Those worried about a lump sum being mismanaged
• Slightly cheaper than equivalent level term insurance

Example:

• Policy: £2,000/month for 20 years
• You die in year 5 → Family receives £2,000/month for remaining 15 years (£360,000 total)
• You die in year 18 → Family receives £2,000/month for remaining 2 years (£48,000 total)

Not life insurance, but often sold alongside it. Pays out if you're diagnosed with a serious illness like:

• Cancer
• Heart attack
• Stroke
• Multiple sclerosis
• Kidney failure
• Parkinson's disease

Why consider it:

• You might survive but be unable to work
• Medical costs and adaptations can be expensive
• Loss of income can be devastating

Cost: Significantly more expensive than life insurance alone (often 2-3x the cost).

Alternative: Income Protection insurance covers more conditions and pays a regular income rather than a lump sum, though it doesn't cover terminal diagnoses in the same way.

There's no one-size-fits-all answer, but here are common calculation methods:

Formula: Annual income × Number of years your family needs support

Example:

• Your income: £40,000
• Years until youngest child is 18: 15 years
• Cover needed: £600,000

This assumes your family could invest the lump sum and draw income from it.

Formula: Total debts + Future expenses + Emergency fund

Example:

• Mortgage balance: £200,000
• Car loan: £10,000
• Funeral costs: £5,000
• 3 years of living expenses: £90,000
• Children's university fees: £45,000
• Total: £350,000

A more comprehensive approach:

D - Debt: All debts (mortgage, loans, credit cards) I - Income: Annual income × years until retirement M - Mortgage: Remaining mortgage balance (if not included in Debt) E - Education: Cost of children's education

Example:

• Debt: £15,000
• Income: £45,000 × 25 years = £1,125,000
• Mortgage: £180,000
• Education: £60,000 (two children)
• Total: £1,380,000

This method usually gives the highest figure, but provides the most comprehensive cover.

Most people choose between:

• Basic cover: Mortgage + 2-3 years' expenses (£250,000-£350,000)
• Moderate cover: Mortgage + 5-10 years' income (£400,000-£600,000)
• Comprehensive cover: Mortgage + full income replacement (£800,000-£1,500,000)

The sweet spot: Enough to pay off the mortgage and provide 5-10 years of income replacement for your family.

Costs vary based on:

• Age
• Health
• Smoking status
• Amount of cover
• Length of term
• Type of policy

£250,000 cover for 25 years:

£500,000 cover for 25 years:

Key takeaways:

• Life insurance is cheaper the younger you are
• Women typically pay less (longer life expectancy)
• Smoking can double your premiums
• Serious health conditions increase costs significantly

Age: Older = higher risk = higher premium

Health:

• Diabetes, high blood pressure, high cholesterol → Higher premiums
• Cancer history → Much higher premiums or declined
• Obesity (high BMI) → Higher premiums

Lifestyle:

• Smoking → Double the cost
• Dangerous hobbies (skydiving, scuba diving) → Increased premiums
• Heavy alcohol consumption → Higher premiums

Family history:

• Cancer, heart disease, stroke in close relatives under 60 → May increase premiums

Occupation:

• Dangerous jobs (construction, offshore work) → Higher premiums

This is crucial but often overlooked.

What is it? Placing your life insurance policy in trust means the payout goes directly to your chosen beneficiaries, bypassing your estate.

Why do it?

1. Faster payout: Avoids probate (which can take 6-12 months)
2. No inheritance tax: Payout doesn't count toward your estate
3. Control: Ensures money goes to who you want
4. Protection: Can protect the payout from creditors or ex-spouses

Cost: Usually free with your policy.

How to do it: Your insurer will provide a trust form to complete. Takes 10 minutes.

Example:

• Without trust: £300,000 payout goes through probate, takes 9 months, adds to estate value potentially triggering inheritance tax
• With trust: £300,000 paid directly to your partner within 2-4 weeks, no probate, no inheritance tax implications

One policy covering two people (usually a couple).

How it works:

• Pays out on the first death only
• Policy then ends
• Usually cheaper than two single policies

Best for:

• Couples with a joint mortgage
• Couples where both incomes are essential
• Budget-conscious families

Drawback: Once it pays out, the surviving partner has no cover and will be older (more expensive to get new cover).

Separate policies for each person.

How it works:

• Each policy pays out independently
• If one person dies, the other's policy continues

Best for:

• Couples who both need ongoing cover
• When you want flexibility to change terms independently
• When both partners have dependants from previous relationships

Cost: More expensive (roughly 1.5-1.7x a joint policy).

These three types of cover often get confused:

• Pays: Lump sum on death
• Best for: Protecting family from loss of income if you die
• Cost: Cheapest

• Pays: Monthly income if you can't work due to illness/injury
• Best for: Replacing income during long-term illness
• Cost: Moderate

• Pays: Lump sum if diagnosed with serious illness
• Best for: One-off costs (medical care, home adaptations, mortgage repayment)
• Cost: Most expensive

Ideal combination: Life insurance + Income Protection provides comprehensive protection for most families.

Many people choose arbitrary amounts like £100,000 without calculating actual needs. Proper assessment is crucial.

Life changes (children, mortgage, promotion) should trigger a review. Your £100,000 policy from 10 years ago might be woefully inadequate now.

Not all policies are equal. Check:

• Exclusions
• Claim process
• Insurer's reputation
• Financial strength ratings

Insurers will investigate claims. If they find you lied about smoking, health conditions, or lifestyle, they can refuse to pay.

If you don't name beneficiaries, payouts go to your estate (probate delays, potential inheritance tax).

Life changes (divorce, remarriage, new children). Update your beneficiaries accordingly.

When switching, keep your old policy active until the new one is confirmed in force. Otherwise, you could have a gap in cover.

Premiums vary significantly between insurers. Use comparison sites or a broker to check 20+ providers.

Every year you wait, premiums increase. A 30-year-old pays significantly less than a 35-year-old for the same cover.

If you're borderline on BMI, blood pressure, or cholesterol, get these under control before applying. A few months can save thousands.

Smokers pay double. If you quit and stay smoke-free for 12 months, you'll qualify for non-smoker rates.

A 25-year policy isn't much more expensive than a 20-year policy, but gives five more years of cover.

Brokers access deals not available directly and know which insurers are lenient on specific health conditions.

Every add-on (terminal illness cover, critical illness, waiver of premium) increases costs. Only buy what you truly need.

Yes. In 2023, UK insurers paid out 98% of life insurance claims. Rejections are usually due to non-disclosure of material facts during application.

Usually yes, but:

• Premiums will be higher
• Some conditions mean loadings (e.g., +50% premium)
• Very serious conditions might mean declined applications

Work with a specialist broker who knows which insurers are sympathetic to your specific condition.

Options:

• Buy the maximum you can afford (some cover is better than none)
• Choose decreasing term instead of level term
• Opt for Family Income Benefit (cheaper than lump sum)
• Review your budget—£20/month might be achievable with small changes

Workplace life insurance (Death in Service) typically provides 2-4x your salary. This might not be enough, especially if you have a mortgage and dependants.

Also consider:

• You lose it if you change jobs
• It might not pay out for deaths outside work
• You can't take it with you

Best approach: Use workplace cover as a baseline, top up with personal cover.

Yes, you can cancel anytime. But consider:

• You'll have no cover
• Getting new cover later will be more expensive (you'll be older)
• Any health conditions developed mean higher premiums or declined applications

Most insurers give a 30-day grace period. If you don't pay within this time:

• Your policy lapses
• You have no cover
• You'll need to reapply (at current age/health)

Set up a direct debit to avoid this.

Generally, no. Children don't have dependants or financial obligations. The money is better spent on:

• Your own life insurance
• Income protection
• Savings for their future

Exception: Some parents buy small policies (£5,000-£10,000) to cover funeral costs, or to guarantee insurability regardless of future health.

□ Calculate how much cover you actually need □ Decide on term length (until mortgage paid off or children independent) □ Get quotes from at least 3-5 insurers □ Consider whether joint or single policies suit you better □ Check what your employer provides □ Review your budget to determine affordable premiums

□ Be completely honest about health, smoking, and lifestyle □ Get medical records if needed □ Ask about discounts (multi-policy, online applications) □ Read the policy document thoroughly □ Understand exclusions and limitations

□ Set up your policy in trust □ Name your beneficiaries clearly □ Store policy documents safely □ Tell your family where documents are kept □ Add to your will information □ Review annually or after major life changes

Life insurance isn't the most exciting financial product, but it's one of the most important if you have people who depend on you. For the price of a few coffees or a Netflix subscription each month, you can ensure your family's financial security if the worst happens.

The key takeaways:

1. You need it if anyone relies on your income—partners, children, or others who depend on you financially
2. Term insurance is the best value—covers the period when your family needs it most
3. Calculate your actual needs—don't guess; use the debt + expenses or income replacement methods
4. Buy sooner rather than later—premiums increase with age and health changes
5. Put it in trust—ensures fast payout and avoids inheritance tax
6. Review regularly—your needs change as your life changes

Remember, the best time to get life insurance was yesterday. The second-best time is today.

Need help choosing the right life insurance in Yeovil, Sherborne, Dorchester, or anywhere across Somerset, Dorset, and Devon? Book a free consultation with our advisers. We'll assess your needs, compare the whole market, and find the best cover at the best price for your circumstances.

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