Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations:

Replace income for dependents
If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognised case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death.

Pay final expenses
Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance.

Create an inheritance for your heirs
Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries.

Pay federal “death” taxes and state “death” taxes
Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. Changes in the federal “death” tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increases in their state-level “death” taxes.

Make significant charitable contributions
By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums.

Create a source of savings
Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

A mortgage protection policy is a pure life insurance policy with a decreasing sum assured designed to protect the remaining outstanding capital of a repayment mortgage.

Put another way, if you were to die, the lender would like to know that you have an insurance policy in place which will be used to immediately pay off your mortgage debt. That's very handy for them and sensible for you if you're leaving a partner and/or family behind who want to continue living in the property but perhaps wont be in a position to afford the mortgage repayments without you.

Bear in mind that whatever type of mortgage you have, you will need some kind of insurance policy in place to repay the loan in the event of the death of the borrower(s) during the mortgage term. You will not need a separate insurance policy with an endowment mortgage.

Accident, Sickness and Unemployment insurance (ASU), can also be referred to as mortgage payment protection and will provide you with an income to meet your outgoings if you are off work sick, have an accident or are made redundant. It pays out a monthly benefit to cover your mortgage and other related costs.

You may choose the amount of benefit you would like to receive - although there are some limits on the maximum amount. The premium will be a percentage of the amount of monthly benefit you would like to receive. Benefits are usually payable for a maximum of 12 months.

Some policies will also allow you to choose whether you want to receive benefits for accident and sickness only, unemployment only or all three. Most policies will also have a 'deferment period'. This is the period of time you will have to wait after losing your source of income until you may claim the policy benefit.

Critical Illness cover pays out a one-off tax-free lump sum if you are diagnosed as suffering from one of a specified number of life threatening illnesses. It can give valuable peace of mind, covering your financial commitments.

It is common sense to take out building insurance when you purchase a property. Buildings insurance is designed to cover damage to the structure of your home as well as damage to permanent fixtures and fittings.

In any event, if you're taking out a mortgage, your lender will insist on it as a condition of offering you the mortgage. You will need to know the rebuilding cost of your property so that you may insure for the correct amount. Lenders will usually use the rebuilding cost shown in the valuation report to assess how much buildings insurance is needed, and require that any policy taken out covers at least this amount.

The sum insured under a buildings policy must be the full rebuilding cost of the home. Do remember that neither the market value of your home nor the Council Tax band valuation actually has a direct relationship to the rebuilding cost.

You may instruct a member of the Royal Institution of Chartered Surveyors (RICS) to prepare a professional Rebuilding Cost Assessment for insurance purposes.

Alternatively, you could work out the cost yourself. The RICS has a detailed Guide to House Rebuilding Costs published annually by its Building Cost Information Service. It contains four regional groupings covering the 12 standard regions in the UK, five house types, three sizes and three quality specifications. However, it is quite pricey at £87.50.

You may make your own estimate by finding out the external floor area of your home - both upstairs and downstairs, and then multiplying this number by the estimated building cost per square foot or square metre.

You may, in the first instance, want to take a look at the Association of British Insurers' less detailed free access Buildings Insurance Calculator.