Life Insurance vs Savings: do you need one or both?

Life insurance and savings do different jobs. Savings give you money you can access while you’re alive, while life insurance can provide a financial safety net for the people you leave behind if you pass away while covered by the policy. For many people, the answer may not be one or the other, but a combination of both.

When you’re thinking about your family’s future, it’s natural to want to make sure they’d be financially secure, whatever happens. You might wonder whether it makes more sense to pay for life insurance or put that money into savings instead.

While both can help you feel more financially prepared, they work in different ways. Savings can help you build up a pot of money over time, while life insurance can provide a financial safety net for the people you love if you pass away while covered by the policy.

So, when it comes to life insurance vs a savings plan, it doesn’t always have to be one or the other.

Can savings replace life insurance?

Savings could reduce the amount of life insurance you need, but unless you already have a substantial amount set aside, they may not provide the same immediate financial safety net.

Whether savings can replace life insurance depends on your circumstances, your existing assets and savings and how much financial support the people who depend on you might need.

One way to understand the difference is to look at what savings could build up over time, alongside the amount of life insurance cover that could be in place from the start.

If you saved £50 a month for 25 years, for example, you would have put aside £15,000. That money would be yours, and if held in an easy-access account could be available when you need it. Depending on the account and interest rate, the final amount could be higher, although interest rates can change and any withdrawals would reduce the amount you’ve saved.

Life insurance works differently. Rather than gradually building up a pot of money, you pay a monthly amount for a set level of cover. The cost can vary depending on things like your age, health, whether you smoke, how much cover you want and how long you want it for.

To give you an idea, the table below shows a representative monthly costs at different ages for £200,000 level term cover lasting 25 years. This level of cover is closest to the average level term cover of £201,000 taken out in 2024, according to the latest data from reinsurance company Swiss Re.

*Quotes based on £200,000 level-term life insurance over 25 years for a non-smoker. Figures are the average of the five cheapest quotes available at each age, using Iress data and obtained in April 2026. Prices are for illustration only and will vary depending on your personal circumstances and the policy you choose.

The comparison highlights an important difference in what the two approaches provide. Saving £50 a month would build £15,000 of contributions over 25 years, before allowing for any interest or withdrawals. With life insurance, £200,000 of cover could be in place from the policy start date provided the application is accepted, the policy remains in force and any claim meets the policy terms.

The trade-off is that the savings remain your money and may be available during your lifetime. Life insurance premiums don’t build a pot you can withdraw, but the policy can provide a much larger financial safety net before most people could accumulate the same amount through saving.

For some people, existing savings, investments or other assets may already provide the financial security they want for their family. For others, particularly those still building their savings, relying on them alone could leave a gap.

When deciding whether savings alone would be enough, think about:

• How much do I have to set aside today, rather than how much might I save eventually?

• How long would those savings last?

• Could my savings cover my mortgage or other debts?

• Would my family be able to manage everyday costs if I were to pass away?

• Does anyone depend on my income?

• What other financial support, workplace benefit, investments or assets would be available?

That doesn’t make life insurance better than savings. Savings give you money you can use now or in the future, while life insurance can provide a financial safety net for your loved ones if you’re no longer around. For some people, having both may make sense.

Finding the right balance between life insurance and savings

It doesn’t always need to be a choice between life insurance and savings. In fact, they can work well alongside each other, helping you feel more prepared for whatever life brings.

Savings give you money you can access during your lifetime, whether that’s for emergency expenses, home repairs or future plans. An easy-access savings account may allow you to withdraw the money when needed. Life insurance has a different role: helping to give the people you love a financial safety net, if you were to pass away during the policy term.

There’s no one-size-fits-all answer. The right balance depends on your savings, your financial commitments and what your family might need if the unexpected happened.

The important thing is working out what you already have, what you might need and whether there are any gaps. If you’re not sure what the right balance looks like for you, a LifeSearch adviser can take the time to understand your circumstances, talk you through your options and help you find cover that works for you and your budget. Get in touch today to find out more.