As you will probably appreciate, life insurance and life assurance differ in one really significant way (although they are both forms of insurance). Whereas life insurance is only payable if the death occurs within the term contracted for with the insurance provider, a life assurance policy does just that – it assures a life indefinitely, paying out a lump sum once a policyholder dies (as long as they have kept up their payments throughout). For this reason, life assurance is often referred to as a ‘whole of life’ policy.
It is perhaps underappreciated just how useful life assurance can be as a wealth management tool, which is potentially very much for families where high Inheritance Tax (IHT) bills are a concern.
A person can take out a life assurance policy on their life in one of two ways. They can express the policy for the benefit of specified beneficiaries (a spouse or civil partner and/or children), which has the effect of creating a trust for those eventual recipients. Alternatively, the policy may be assigned to a named beneficiary, so that upon death the policy matures and they are paid directly and automatically.
The point here is that when life assurance policies are written in trust or assigned as just described, the proceed of the policy always belongs (in a sense) to the beneficiary and never the policy holder – since they will of course die before there are any proceeds
The point here is that when life assurance policies are written in trust or assigned as just described, the proceed of the policy always belongs (in a sense) to the beneficiary and never the policy holder – since they will of course die before there are any proceeds. This means the assets do not pass into the deceased’s estate and so can be kept of the pool of assets liable for Inheritance Tax purposes.
What is more, the proceeds can be collected regardless of the terms of a will (and simply with only proof of the insured’s death needed). This means that getting at the money is far quicker, as obtaining a Grant of Representation – either a Grant of Probate for a will or a Grant of Letters of Representation in the case of whole or partial intestacy – can be a lengthy, drawn-out process.
Life assurance proceeds can be particularly comforting because that money could be used to settle IHT due on the rest of the estate while the Grant of Representation is being processed. These kinds of provisions make all the difference at what will be a highly stressful time.
The possibilities presented by life assurance for wealth management purposes are a perfect illustration of how a holistic approach can pay serious dividends for you and your family (in money and removing stress). IHT planning is a notoriously tricky area of managing family wealth, however, and you should certainly take professional advice to ensure that such techniques are executed properly. A good wealth manager will also be able to put you in touch with lawyers for the necessary work here.
If life assurance has piqued your interest, get in touch to learn more from our wealth management market experts.