Ensure life cover payouts go to your loved ones rather than HMRC


There are few clients without some form of life cover, to cover their businesses, families, loans or mortgages. It is an important part of the overall financial plan and is often an area which is forgotten about.


Julia Banwell, Financial Planner, Shepton Mallet


There are many instances where clients have one policy, then another, and another, all for various sensible reasons. It can be more cost effective to amalgamate these into the one policy, saving multiple policy fees, which also reduce the number of direct debits from your accounts each month. Life cover has become less expensive in more recent years and we are making considerable savings for some clients.


Additionally, when reviewing the life cover arrangements, we have seen an increasing number of clients with policies taken out some time ago, perhaps through the bank, which are in a single person's name. These policies, if not written under trust, would form part of the deceased’s estate and thus potentially be subject to Inheritance Tax. This can mean that a policy with a death sum assured of £100,000 would only actually generate a payout of £60,000 for your business or family, after Inheritance Tax has been paid.


It is very straightforward to review your policy and to place it under trust. At Old Mill we are happy to help. Another benefit is that if the policy were ‘under trust’ the proceeds would be paid out immediately on production of the death certificate, without the need to wait for probate to be granted. This can help to immediately ease cashflow worries at a very difficult time.


The new Gender Equalisation rules having come into force on 21 December 2012 so now is an opportune time to reflect on the cover that you have, consider whether it remains appropriate for your needs, and to review the existing arrangements. The new rules mean that the life cover rates are being equalised for both men and women and, as a result, it is fully expected that the life cover rates for women will increase (and, conversely the rates for men should reduce). We are already seeing life companies changing their rates providing another reason to check that the monthly premiums you are paying remain competitive.


When we review your life cover, we will take into consideration that if you have a company, it can be possible to have the life cover paid for by the company, through a Relevant Life Plan. This saves Corporation Tax and means that any income received from the company does not need to be spent on life policies. Again, it can be very effective for both tax planning and is a way to increase tax efficient drawings from the company for the directors.


“It is very straightforward to review your policy and to place it under trust. At Old Mill we are happy to help.”


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