Should life insurance be part of your household budget?

We look at what life insurance actually does, who it can help, and how to balance premiums alongside rent or mortgage payments, childcare, debt and day-to-day living costs.

What life insurance is really for

At its core, life insurance is about financial protection. If you were to die unexpectedly, a payout could help your loved ones cope with the immediate and long-term impact.

That might include:

• Covering everyday living costs while they get back on their feet.

• Paying off or reducing a mortgage or rent commitments.

• Clearing loans, credit cards or other debts.

• Helping maintain long-term financial stability for children or dependants.

It’s not about expecting the worst – it’s about ‘just in case’ planning to make sure one event doesn’t trigger a financial shock that changes everything.

When life insurance matters most

Life insurance tends to be most relevant if other people rely on your income or financial support. That could include:

• A partner who depends on your salary to cover household bills.

• Children or other dependents who would need ongoing support.

• Shared credit commitments, such as a mortgage or joint loans.

If you live alone with no dependents and minimal debts, life insurance may be less of a priority. But if others would struggle financially without you, it’s worth serious consideration.

Protecting borrowing and credit commitments

With many households carrying mortgages, personal loans, car finance and credit card balances, debt doesn’t disappear if you do.

Life insurance can help ensure that outstanding borrowing doesn’t fall on a partner or family member who may already be facing a loss of income. In some cases, policies are specifically arranged to cover the value of a mortgage or major loan, offering reassurance that the home or essential assets aren’t at risk.

Balancing premiums with real-world budgets

The biggest concern for many households isn’t whether life insurance is useful – it’s whether it’s affordable.

A few practical ways to keep premiums manageable include:

• Only cover what’s needed: The level of cover can be matched to key debts – typically your mortgage and essential living costs – rather than an arbitrary lump sum.

• Choose the right policy length: Term insurance policies can run for a specific number of years, such as until a mortgage is paid off or children become financially independent. They mean you don’t keep paying premiums longer than you have to.

• Review cover regularly: As debts reduce or circumstances change, you may be able to adjust or reduce cover rather than paying for protection you no longer need.

• Avoid over-insurance: Paying for excessive cover can strain monthly budgets without adding meaningful extra protection.

Even small monthly premiums can provide a significant payout, making life insurance one of the more cost-effective forms of financial protection when set up carefully.

Level term vs decreasing term – what’s the difference?

When budgeting for life insurance, the type of policy you choose can make a real difference to the cost.

Level term insurance pays out a fixed amount throughout the policy term. This means the cover stays the same whether you claim in year one or year twenty. It’s often used to protect family income, cover living costs for dependents, or provide longer-term financial security. Because the payout doesn’t reduce over time, premiums are usually higher.

Decreasing term insurance reduces in value over the life of the policy, typically in line with a repayment mortgage. As the potential payout falls, premiums tend to be lower, making this option a more budget-friendly way to protect a specific debt.

For households watching every pound, choosing decreasing cover to protect a mortgage, and level cover only where it’s really needed, can help keep premiums affordable while still offering meaningful protection.

Fitting life insurance alongside other priorities

Fitting life insurance premiums into a budget alongside competing priorities like saving, debt repayment and daily expenses means balancing coverage needs with affordability.

Some people will want to make sure the essentials are covered first - like keeping a roof over your head - and then build in protection including life insurance. With these sorted, it’s time to plan for longer-term goals or discretionary spending.

Here’s what that can look like:

• Core living costs first: Things like housing, utilities and food. You may also wish to include other priorities, such as clearing high-interest debt and making regular pension contributions.

• Protection needs next: Life insurance and other cover that can protect your family from debt and lost income.

• Then longer-term goals and extras: Saving or investing for aspirational goals like moving to a better home, plus the treats or experiences that you want to enjoy.

This kind of approach can fit protection into your budget, without feeling like it crowds out day-to-day priorities. In practice, these priorities may overlap, and the right balance will look different for everyone - so this is just one way to think about budgeting, rather than a set of rules. The right approach will depend on individual circumstances, financial commitments and future goals.

The role of life insurance in long-term financial health

While life insurance doesn’t build wealth, it can help protect it. By preventing debts from spiralling or assets from being sold under pressure, it supports the financial resilience of those you leave behind.

For many households, that peace of mind alone is enough to justify including life insurance as a modest, planned part of the monthly budget.

Is life insurance worth budgeting for?

In a climate where money feels stretched and choices matter more than ever, life insurance isn’t about pessimism – it’s about preparation.

If your absence would leave loved ones facing financial hardship, covering key costs and debts through life insurance can be a sensible, proportionate step. The key is tailoring cover to your real needs, reviewing it regularly, and making sure it fits comfortably alongside the many other demands on your household budget.