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.

To get to the bottom of this issue you must start by asking yourself if anything happens to me, such as death, will I leave anybody worse off financially.

What do we mean by the term anybody? well this term refers to any individual or organisation who will be impaced finacially by the loss of the life assured such as dependent relatives mortagge companies or even business partners.

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.

Moving on to the second most popular product that is family protection, probably due to the fact that it invariably protects your loved ones and therefore ensuring there continued lifestyle way beyond your demise, should be the most important of all the life insurances.

Actually putting a figure on what is needed for family protection is somewhat more difficult than the mortgage life insurance. To do it you need to work out what would be the financial impact of the life assured not being around. The best way to do this is looking at the salary that the person brings into the house. On the basis that most if not all people live to their means it would be fair to say that the financial impact of them dying would be the whole and total loss of their salary. So if you earn 20k per annum then you would need some sort of life insurance plan that would pay out a sum equal or greater than 20kpa to be of any benefit. If you could not find a plan that would generate an annual or monthly income amount you would need to consider taking out life insurance for a fixed lump sum of money.

If you do need to arrange a lump sum insurance plan you will need to know how big a lump sum is necessary. Whilst there are a lot of calculators on the internet designed to give you an idea of how much you would need in order to generate an income of a set amount, they do rely on assumptions of investment growth and inflation. However it is not considered unacceptable to taker out a lump sum for about a multiple of ten of what is required as an income. So in this example you would need a lump sum life insurance plan for 200,000k. This theoretically in turn could be invested to possible generate the 20k per annum into the future as income.

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.