Paying Inheritance Tax
To ensure the proceeds of the life insurance policy are not included in your estate, though, it is vital that the policy be written in an appropriate trust. This is a very complicated area of estate planning, and you should obtain professional financial advice.
A whole-of-life insurance policy has a double benefit – not only are the proceeds of the policy outside your estate for Inheritance Tax purposes, the premiums you have paid for the policy will reduce the value of your estate while you’re alive – further reducing your estate’s future Inheritance Tax bill.
Different types of policy
Some whole-of-life policies require that premiums are paid all the way up to your death. Others become paid-up at a certain age and waive premiums from that point onwards.
Whole-of-life policies (but not all) have an investment element and therefore a surrender value. If, however, you cancel the policy and cash it in, you will lose your cover. Where there is an investment element, your premiums are usually reviewed after ten years and then every five years.
Whole-of-life policies are also available without an investment element and with guaranteed or investment- linked premiums from some providers.
After a review you may have to increase your premiums significantly to keep the same level of cover, as this depends on how well the cash in the investment reserve (underlying fund) has performed.
Let us help
To learn more about Whole-of-Life Insurance, please get in touch.