The FCA do not regulate Trusts and IHT planning.
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.
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.
With this type of policy the amount of benefit that is paid out upon death remains level throughout the term of the policy. Again the policy has a fixed end date. These policies are often used to protect a mortgage which is arranged on an interest only basis, where the mortgage balance does not reduce during the term. They are also appropriate for any reason where a lump sum would be required on death during a certain period of time. As with a decreasing policy at the end of the term the cover ceases without value.
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.
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.
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