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Tel: 01245 806 312

Life Assurance

The Financial Conduct Authority does not regulate inheritance tax and trust planning. 

Tax treatment is based on individual circumstances and may be subject to change in the future. 

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. 

Life assurance is a very simple policy that pays an amount of money upon your death. Different types of life policy are designed to suit differing circumstances.

Mortgage Protection

Also referred to as Mortgage Protection, this policy has a specified end date and the amount of benefit that would be paid out reduces through the term of the policy. This reduction in cover is designed to mimic the reducing balance of a repayment mortgage over the same term so the benefit can be used to repay the mortgage in full. At the end of the tem the policy and cover ceases.

These plans have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse.

Level Term Assurance

No one knows what the future holds, but if you were to die, how would your family cope financially? Could they pay the mortgage and other household bills? What about childcare costs? Having enough life assurance in place could help ease the financial strain on your family at an already difficult time.

With Level Term Assurance you choose the cover amount and the length of time you’d like it for, and pay the same monthly amount for the duration of the policy. Though, remember that the policy has no cash in value at any time and if your payments stop, so does your cover.

With a level cover policy, if the worst happens and a claim needs to be made, the lump sum payment will help your family to maintain their standard of living, and can go towards paying monthly bills, such as rent, or a mortgage. However, it’s worth bearing in mind that because your payments stay the same, the fixed cover won’t increase as the cost of living rises.

Over time, the price of everything goes up. If you’d like your cover to take inflation into account, you can opt for this as part of your level cover policy. Your cover amount will rise with inflation, and your monthly payments can therefore go up. The Consumer Price Index (CPI) determines inflation each year. If CPI doesn’t increase, then the cover amount and premiums won’t increase. Though you might not notice inflation day to day, or with smaller amounts of money, the effect on a life insurance policy can be considerable.

Whole of life policy

As the name suggests these types of policy will insure you for the rest of your life, subject to the premiums being paid. The main difference therefore with a whole of life policy is that it will pay out at some stage. For this reason with a whole of life policy there will be a higher premium compared to a term assurance. These policies are suitable when there is a need for money upon death whenever that occurs, for example if there will be an inheritance tax liability on death then a whole of life policy may be used to pay the tax bill.

Writing a policy in to trust

With all types of life assurance it is important to consider writing the policy in to trust. If a policy is not in trust then the proceeds will pass to your estate. This means that the amount of money paid out by the policy will be included in any inheritance tax calculation and could be liable for a 40% tax charge. For every £100,000 of life cover that you have, over the nil rate inheritance tax band, your estate will have to pay £40,000 in tax. By writing the policy in to trust the proceeds are paid to the trust and not your estate avoiding any tax charge.

Having a trust in place can also speed up the time it takes for the benefits to get to the right person. If the policy is not written in trust and the proceeds are paid to your estate then they can not be distributed until probate has been granted, this can take months. When proceeds are being paid directly to a trust the life assurance company will make the payment on production of a death certificate, which is normally available within the first week or so. This can make a large difference, especially if the proceeds are to be used to repay a mortgage or other debts.

If you currently have life assurance policies that are not written in to trust and you would like further details of how this can be achieved please contact us.

Tax treatment is based on individual circumstances and may be subject to change in the future. 

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. 

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