Insurance World

It’s simple, always have your Life Insurance policy “Written in Trust”. This may sound technical but it is easy to understand and it’s so easy to organise.

“Written in Trust” ensures that in the event of a claim, the policy will pay directly to the beneficiaries you name on the policy when you first take it out. If you do not do this, the policy will payout to your legal estate and this inevitably means that the money stays in your solicitor’s hands for some time.

Yes, that implies legal delays and, of course, your solicitor takes a small cut!

Then, if the value of your taxable estate exceeds Ј275,000, and remember your home can easily account for the lion’s share of the Ј275,000 limit without much difficulty, your estate will have to pay Inheritance Tax. This represents 40% of the estate’s taxable value in excess of Ј275,000. So, if your estate has to pay Inheritance Tax and the proceeds of your life policy go to your estate, the taxman gets his hands on 40% of your life policy!

But it’s so easy to avoid all these problems.

Simply get your policy “Written in Trust”. Then the life insurance company pays out immediately, directly, and totally tax-free, to the persons you have named on your policy. All you have to do is tell the online brokerage organising your policy that you want your policy “Written in Trust” and they will automatically sort it out for you.

This advice remains sound even if the policy is designed to pay off your mortgage. Rather than your estate using the insurance payout to pay off your mortgage, the policy can be written in trust and paid to your partner and then he or she can use that money to pay of the mortgage. The benefit? Well if your taxable estate exceeds the IHT threshold the mortgage is effectively paid off tax-free.

The extra good news is that all the brokers we’ve met will arrange for your policy to be “Written in Trust” as a free of charge service. So it’s a win win situation and there aren’t many of those around these days!

Life insurance is one of the most important types of insurance you can get, although many people don’t get it early enough or have inadequate cover. If you don’t have life insurance yet or you are not sure if your policy is good enough, then there useful tips will help you to decide when and what type of life insurance to get:

Get insurance now

Right now life insurance is at an all time low, so whatever age you are the time to get insurance is now. In fact, the younger you are then the cheaper the insurance is likely to be, because you are less of a risk to the lender. By getting insurance now you will have the peace of mind that should the worst happen, you will be covered.

How much insurance?

Although life insurance is relatively cheap, most people don’t have an adequate level of cover. You might think that Ј100,000 of cover for a few pounds a month seems good, but Ј100,000 is not that much. Although a payout of Ј100,000 might seem like a lot of money, that money might have to support your family for the next 15 or 20 years. Many people simply do not have an adequate level of cover to support their families after their death.

Working out how much you need

If you are looking for life insurance, then the best way to work out how much cover you need is to work out the amount your family needs to support them each year, and then multiply this by 25 to allow for tax over 15 or 20 years. This is the amount of cover your family would need to support their current lifestyle for a significant period of time. Obviously, the amount you need also depends on how much you can afford. Generally, the more you can pay the better.

Term insurance

The most common form of life insurance is term life insurance. This form of life insurance is cheap, and you pay a set amount each month for the term of the agreement. You work out how much you want your family to receive in the event of your death. If you stop paying the monthly payments you lose all the money you have put in, and if you are still alive at the end of the term then there is no payout. This form of life insurance is cheap but does not guarantee payout.

Whole life insurance

The other most common form of life insurance is whole life insurance. Basically, you are insured for your entire life. The amount you pay is put into an investment fund, with your premiums usually remaining the same for the first few years before going up. This type of insurance is more expensive but has the advantage that payout is guaranteed.

Other factors

Before you get life insurance, make sure that you work out exactly what sort of cover you need, and look at any other factors that will affect the price. If you smoke or have poor health then some insurance policies will charge more. Whatever type of life insurance you get, it pays to get insurance as soon as you can and for as much as you can afford.