The interaction of UHV cleaved InSe crystals with Li deposited at room temperature has been investigated using soft X-ray photoemission (SXPS). In the presence of Li, an insertion reaction is observed leading to a chemical decomposition of InSe to Li2Se and metallic In, while intercalation of Li into InSe occurs as a coprocess. Our results of the electronic contribution of the Gibbs free energy of intercalation as deduced from the work function change by Li insertion are compared to published values of the change in electromotive force (EMF) as obtained by electrochemical intercalation experiments. The parameters responsible for the competition between intercalation and chemical decomposition are discussed in relation to the thermodynamics and the electronic structure of InSe.