Life Protection

Taking out a life protection policy can put financial provision in place for your family in the event of your death. Policies need to match your specific circumstances, which means it’s crucial to choose the right term and sum to insure. The cost can vary between providers and change regularly, so it’s worth looking around to find the one that best suits your needs.

Whole-of-Life Insurance

While a term assurance policy will stop providing cover at the end of the term, the cover from a whole-of-life policy will be maintained as long as you are prepared to pay the premiums, and therefore for the ‘whole of life.’ As the premiums you pay must be maintained for the life of the policy, they will be higher with the whole-of-life cover or reviewed at perhaps 5-year intervals (depending on the policy provider) to ensure the cover is sustainable. How much you pay at the outset will depend on the sum insured, the type of plan, your age and medical history.

Many risks don’t require whole-of-life protection, but for certain planning areas, such as providing for inheritance tax on death, or covering a critical illness that becomes more likely the older we get, they can be very useful tools.

Remember, you can cancel a policy at any time. However, if you do so, there is no guarantee that you will be able to get life insurance in the future, in the event that your health deteriorates.

Term Assurance

Term assurance may be suitable if you only need cover for a certain period of time, perhaps until your children have moved out, or the mortgage has been paid off.

You decide on how long you want the policy to last for. If you die during this time, it pays a tax-free cash lump sum to your loved ones. However, if you live beyond the end of the term, your plan will have no cash value. There are different types of term insurance available.

Level-term Assurance

With level-term assurance, your policy will pay out the same amount at any time during the agreed period.

Decreasing Term Assurance

The sum insured reduces over the term of the policy, meaning the pay-out will decrease by an agreed amount each year. This could be suitable if, for example, you plan on paying your mortgage off by a set time.

Equally, you can also purchase increasing term assurance, in which the value of the pay-out increases the longer the policy remains active. An independent financial adviser at GPP will be able to explain the relevance of this option for you, and further discuss your suitability for increasing term insurance.

Family Income benefit

This is another form of decreasing term assurance. It’s structured to replace a regular amount of income for a fixed term in order to replace the income lost when someone dies, rather than a lump sum being paid out. As it’s effectively a decreasing-term assurance paying out a regular tax-free income, it’s often cheaper than level-term lump sum insurance and therefore could be useful when you need to keep premiums to a minimum.

Relevant Life Insurance (Business only)

This is a life insurance policy taken out on your behalf by your employer to provide cover up until your 75th birthday, as a maximum. The premiums are tax-efficient to both the employer and employee, and can be a good alternative to death in service benefits, especially for smaller companies. The benefits are paid out in a tax-free lump sum, with no limits on the amounts that can be insured. Conditions will need to be met to qualify as relevant life with HM Revenue & Customs (HMRC) in order for the appropriate tax benefits to apply. Our experienced financial advisers at GPP will be able to discuss this with you further.

Writing a Policy in Trust

Putting the benefits paid on death into a suitable trust can be a very useful way of ensuring they are passed on to the intended beneficiaries at the right time. The pay-out also won’t form a part of your estate when considering any inheritance tax liabilities.

While the proceeds of a life insurance policy won’t usually attract income or capital gains tax, under normal circumstances, it will form part of your estate and may therefore be subject to inheritance tax.

Putting an insurance policy in trust at outset means the proceeds will be paid directly to your beneficiaries in the event of your death, rather than to your legal estate, and will not be taken into account when inheritance tax is calculated.