Whole of Life Assurance
As the name suggests a whole life policy is designed to provide life assurance cover for your whole life and doesn’t finish at a pre-defined term. If you continue paying into a whole-life plan it will eventually pay out on your death so they are normally significantly more expensive than the equivalent term assurance as they are effectively guaranteed to pay out their benefit eventually.
Often whole life plans will contain a savings component, the idea of which is to build up a fund in the early years which is used to subsidise the high costs of life assurance in the later years. In some cases, this may provide you with a lump sum if you cash in the plan after many years, but it is not a savings plan, the insurer is effectively buying themselves out of the ongoing life assurance risk. In most cases even if the fund runs out of money, the whole life plan will still provide the death benefits originally agreed but you should carefully check your policy wording.
In most cases, premiums are fixed for the term (whole of life) of the policy but in some cases premiums are reviewable based on the investment return and may need to be amended depending upon investment returns.
Whole of Life plans and Inheritance Tax
Whole of life policies are often used to provide a cash sum to cover the estate liability to inheritance tax on death. They can be relatively inexpensive at pre-retirement ages and particularly on joint life second death plans which only pay out after you and your partner are both deceased. The reason they are useful and relatively inexpensive, is that if you are married your partner will not pay any IHT on your death (and vice versa) but when the second life dies the whole estate will be subject to IHT. The whole of life plan is written in trust (thereby not attracting IHT on the lump sum payable on death) and pays out to cover the beneficiaries IHT liability.
This is just one option to look at if you will have a significant IHT liability on death. We specialise in effective tax planning across income tax, capital gains and estate planning. Please contact us on 01274 691888 if you wish to discuss any aspect of your finances with us.
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