Whether unmarried or facing a large liability, clients can find protection has a valuable part to play in inheritance tax (IHT) planning strategies. Although life insurance policies do not reduce future liability, it can be used to cover a future IHT bill.
For example, if a married couple has an estate worth £900,000, and cannot use the residence nil rate band as they have no children to leave their home to, they could take out a whole of life policy for £100,000 to cover the potential IHT charge.
These policies are available up to age 85 and, providing the premiums are maintained, will guarantee a payment on death. The sum insured can be adjusted if a future liability grows, with many including an option to increase cover without further underwriting.
Two different types of plans are available. The more popular is the guaranteed acceptance plan, which requires no medical underwriting and is typically sold direct, while fully underwritten policies are more common in the adviser market and can be arranged for much larger sums insured.
Although providing medical information can result in lower premiums for clients in good health, insurers are recognizing the need for guaranteed acceptance plans in the adviser market. For example, last November, AIG Life launched its Over Fifties Life Plan, allowing advisers to arrange up to £15,000 of cover for their clients without any underwriting.
If you have any queries regarding protection planning, please do not hesitate to contact a member of the Foresight team on 0161 926 9350.