Life Insurance

There are many different types of insurance need and products designed to fit these needs. Below is a brief description of a few of the most commonly used.

Term Assurance

Term assurance policies have a known level of cover that will be paid out in the event of death within a known period of time.  These polices are often used to pay off a mortgage or provide for dependents.  The proceeds of the policy will be paid out free of income or capital gains tax.  A trust may be used to ensure the proceeds of the policy are paid to your chosen beneficiaries and to avoid being included in your estate for inheritance tax purposes.

Critical Illness Cover

A Critical Illness plan is designed to pay out a lump sum if you are unfortunate enough to suffer from any of the specified critical illnesses.  The lump sum could be used to pay for things like nursing care, home-help, adapting your house to accommodate a disability; it could pay off your mortgage or give you a holiday to recover from treatment.  Critical illnesses usually include cancer, heart attack, kidney failure, multiple sclerosis, major organ transplant and strokes.

Income Protection

An income protection plan or permanent health insurance (PHI) policy, as it is sometimes known, provides an income benefit if you were unable to work because of disability caused by sickness or accident.  Benefit will normally start at the end of an initial waiting period, which is normally 4, 13, 26 or 52 weeks long and is payable until you either return to work, die or the policy term expires.  The policy term is normally linked to your expected retirement age.

Writing your policy under trust

Using a trust provides a number of benefits, specifically:

  • You can identify who the beneficiaries should be (and with some trusts you have the ability to change this).
  • Your chosen beneficiaries will receive the benefit quickly without the need for probate or prior payment of inheritance tax.  For this to be effective, it is essential that you appoint at least one additional trustee to act with you and, of course, to deal with the policy in the event of your death.
  • The amounts payable to your beneficiaries are, generally, free from inheritance tax.

There are two main types of trust available to you – flexible trusts and absolute trusts (also known as bare trusts).  These trusts have different features and different inheritance tax treatment.

Source: Threesixty LLP Online 2019

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