Whole of Life Cover & Inheritance Tax - Key
Points
- This provides life cover for as long as
you live - i.e. there is no fixed term
- It can be taken out to cover one or two
people
- The amount of cover is normally set at an
amount equal to the Inheritance Tax liability
- This method is generally suitable for
people who don't want to give up access to any of their
capital, or its future growth
- You need to be in reasonably good health
to get such a plan
- It is possible to effect this type of
plan by paying for it monthly/annually - or less commonly by a
one off payment.
- The plan is placed under trust so that
the proceeds do not form part of your estate
- For joint plans (for cover for two
people), they are usually taken out as "joint life second
death". This means that there is no payment on the death of
the first life assured, only on the subsequent death of the
second life assured.
A whole of life plan is really just an
investment contract. You invest money, and each month part of
the investment is taken to pay for the cost of the life cover.
For Whole of Life Plans which are paid for monthly or
annually, there are a number of ways to approach this
investment strategy.
Maximum Cover
This is the cheapest option.
The monthly payment you make to the insurance company is aimed
at being just enough to cover the cost of the life cover. This
is likely to work well for the first five or ten years. After that
period the plan payment is reviewed, and the cost of the cover
will have to be increased.
Balanced Cover
This method involves paying a
larger premium for the same amount of cover. Because you are
paying a larger premium more of the contribution builds up in
the plan. The aim is that as the cost of the cover becomes
greater there is enough in the "pot" along with the ongoing
contributions to cover the increased cost of the life cover
without increasing the regular payment. However there is no
guarantee of this, and it will depend on how the fund grows.
Guaranteed Premiums
There are in fact some companies that offer
whole of life cover with guaranteed premiums. They guarantee
that your premium will never increase, and that they will
provide you with the cover until the day you die.
A whole of life plan can be used on its own,
or in conjunction with other Inheritance Tax mitigation
strategies. However care must be taken if it is used with some
Gift and Loan Plans or Discounted Gifts,
as the withdrawals can be treated by HMRC as a return of capital
and not as an income.
Term Assurance & Inheritance Tax - Key
Points
- Term assurance has a fixed term. So is
generally only suitable when there is a known period of
liability
- This will usually mean when you have made
a gift, and need to survive for seven years as the gift
becomes a PET - a Potentially Exempt Transfer (see
Exemptions & Allowances)
- Some life insurance companies offer plans
specifically designed to cover PETs. These are known as Gift
Inter Vivos Plans ("gift between the living" in Latin)
- It is also possible to effect a Term plan
that has a conversion option. This means that it is possible
to change the plan into a whole of life plan at a later date
Again, for term assurance you need to be in reasonably good
health, and it will not be suitable for
everyone.
|
