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A question that any person concerned about sound financial planning should always ask themselves, but how do you work out the 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. The term "someone" means anyone who may be financially connected to you such as your mortgage company, a dependent relative such as a child or spouse or in some cases a business partner. In short it just means in the event of death if someone connected to you is impacted financially then you need life 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. If you owe money and you die the lender will be financially worse off in so much as you will not be around to pay their loan and therefore they will lose their money. So in the question above they are the individual who will be worse off in the event of your death. With that in mind if you have say a 110k mortgage or loan you would be well advised to have 110k life insurance which would in turn pay out and repay the loan to the lender in the event of your death. 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. 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.
Article Source: http://www.itempad.com
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