Who needs life insurance?

Anyone who has dependents. Most people's largest financial protection needs occur when they marry and have children, usually between their mid-twenties and early forties. It is at this time that the death of a parent can have the most serious financial repercussions on a family. It is vital that financial protection should be in place to replace an earner's income or to pay for carer services until youngest child reaches 18.

When children become independent, the need for parents to maintain high life insurance cover becomes less of an issue and they can begin to address other key financial affairs such as saving for the furture. However, insurance protection should remain in place to cushion the impact of their partner's death on their standard of living.

How much life insurance should I have?

The amount of life insurance cover you may need depends upon four factors - your age, the number of dependents you have, your income and your outstanding debts.

People with young families need life insurance more than people in their forties and fifties whose children would have left the family home. For a young family, the loss of a parent could mean that the surviving partner must try to maintain the family's standard of living for 18 years until the youngest child becomes independent. So a realistic level of life insurance cover is a must. For parents in their forties and fifties protection is still important, though cover does not have to be so extensive.

The more dependents you have, the more cover you need. However, life insurance bought to cover the cost of bringing up your children should be timed to end when they become self-supporting, usually at 18.

The level of replacement income your partner will need if you die will be an important factor when determining the amount of cover required. If you die, it is imperative that your surviving partner is not left with a financial millstone such as a large mortgage. Life insurance should clear such debts in the event of your death.

Ok, I'm convinced that I probably need life insurance? What type of life insurance policy should I buy?

You should first look at term insurance. This temporary form of life insurance is offered by most insurance companies, a number of friendly societies and newcomers to the financial marketplace such as More than and Virgin. It is based on a simple concept - insurer guarantees to pay the policy benefits if you, the life assured, die within a given time. If you survive to the end of the life insurance policy's term no benefit will be paid.

The term of the life insurance policy depends upon you. It may be anything from a few years to several decades, but it should coincide with your need for protection. Life insurance policies may be written on your life or on the life of yourself and your partner. Term life insurance is the least expensive form of life insurance cover and for most people it is the best option.