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As a financial advisor I find that I am often asked that very question but it has to be said that it is generally quite easy to answer. The first question that you need to ask yourself in order to answer the above is "If I die will I leave someone worse off financially?" 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 bearing in mind the various needs such as family protection, mortgage protection or even business protection we will first look at the most used of all types of insurance, and that is insurance to protect a loan on a property. 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? Unlike mortgage protection were there is a fixed debt and therefore a fixed sum assured, taking out life insurance to protect your family is a little more complicated. This is due mainly to the fact that the need is a bit harder to quantify. To do this you first need to establish what would be lost in the event of death. This is done usually by coming up with a figure similar to the amount of income that is produced by the life assured. For example if you are on a 20k per annum salary, then it would be prudent to have cover that would generate that amount of money in the event of death. This can be done by taking out a plan that pays out an annual benefit of the 20k per annum or arranging a plan that will generate a lump sum that can be subsequently invested to produce the 20k. How much money would you need from a lump sum plan in order to produce a lump sum of 20k per annum? This is very subjective and does depend on market conditions. It is also effected by were exactly you intend to invest the money in order to produce the returns. That said it would not be considered unusual to times the need by ten and use that figure for the ultimate value ie 20k per annum times ten transfers into a 200k lump sum. Invested this would hopefully be able to produced the desired 20k well into the future. So in conclusion, life insurance is only necessary if you have people who would be financial worse off in the event of your death. The amount needed for that cover is dictated by the financial impact of your death or that of the life assured.
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