This is a question that is often asked of me as a financial advisor and one that is very simple to answer. In order to establish if someone needs life insurance you first need to ask yourself a very simple question. In the event I die will anyone be financially worse off?

In the question "will anyone" that refers to not only family dependents but can also mean lenders or business partners, just about anyone really. So in other words if you die and someone needs money as a result, you will need to sort out some sort of insurance.

So before we look at family protection lets deal with the most common need for life insurance and that is to cover a lending institution such as a mortgage company.

Let's say for example you have a mortgage for a 100k in the event that you die there will be a need for a 100k to repay the lender. This is simple all you need to arrange is life insurance cover for 100k and in the event of your death it will pay out that amount of money and then however is dealing with your estate will be able to settle the debt, simple.

Now family protection, this is probably the second most common type of protection but in my opinion by far the most important. Why? Well, because it is for the benefit of your love ones. What is the point of working to build up a lifestyle for you and your loved ones, for them to only lose it in the event that you were to die?

Family protection is a little harder to quantify in so much as how much do you take out in life insurance? Let's say that you are the breadwinner in a household and your income is 20k per annum. If you can get hold of a type of insurance that pays out an annual sum such as the type we have in the United Kingdom called family income benefit then all you need to do is take that out for 20k pa and that is sorted. If this is not the case then you will need to take out a lump sum type insurance policy generally known as lump sum term assurance.

It is a rule of thumb that with this type of insurance you generally take out 10 times the amount needed annually. So in this particular case you would be well advised to consider taking a plan for 200,000k. The purpose of this would mean that in the event of your death the money could be invested to generate an income of 20k well into the future.

So in summary, the need for life insurance is defined by the answer yes someone will be worse off in the event of my death and the amount necessary is defined by establishing the amount either needed to repay liabilities or the amount lost in the event of the death.

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