Life assurance is an essential but often overlooked part of basic financial planning. “What would happen if” is usually how the conversation begins (and for many) ends. Maybe it is worth considering this type of product for what is it – your financial risk is assumed by a third party in exchange for a consideration – the monthly premium. Statistically an individual is unlikely to meet an untimely end however statistics also show that these risks are real and the unexpected can happen, so what would happen if...? Answer - without adequate protection, financial hardship at the worst possible time
Expats can now save on their life assurance costs. We have found that many of our clients currently living abroad had limited access to life assurance and critical illness plans. Until recently no UK life assurance company has offered their policies to expats and therefore international providers or "local" firms have been the only option. The good news is that one major UK life company is now offering plans to British passport holders living abroad. Their rates are very competitive and in some cases they will offer the same quote to an expat as they would a UK resident, representing a significant cost advantage. Let us look at your existing protection plans and provide you with a free and unbiased comprehensive review.
As we have in-house independent protection specialists we can assess your needs, look at what you have in place already and advise on its suitability and sufficiency. There are many ways to protect against the financial effects of losing a loved one or business partner. It is also vital to look at establishing an appropriate will and using trusts to avoid delays and additional layers of cost and taxation
- Level Term Assurance – a very cost effective way of providing cover, the sum assured remains constant and the premium is guaranteed. Policy provider pays out the sum assured or an income in the event of the death of the life assured during the term.
- Decreasing Term Assurance – level decreasing plans will match a liability that reduces evenly over the term of the plan.
- Mortgage protection plans pay an amount equivalent to the outstanding mortgage balance on a repayment mortgage
- Whole of Life – life assurance written without an end date, hence the name. Commonly used for Inheritance Tax mitigation.
The Use of Simple Gift Trusts with Life Cover
The proceeds of life insurance do not usually attract income or capital gains tax, although they may in certain business protection scenarios. Your family, however, could be liable for inheritance tax (IHT) on any sum assured paid out if allowed to become part of your estate. IHT is currently charged at 40% and is due on worldwide assets if an individual’s estate value exceeds £325k.
The 2015 Budget introduced a new provision allowing individuals and married couples to pass on their main home with a smaller tax liability which is being phased in until 2020-21. This means that married couples will eventually be able to pass on estates worth up to £1m to their direct descendants before IHT becomes an issue. It is worth noting at this point that is it the main home only that receives this concession, buy-to-let and second properties will add to the total size of the estate as normal:
- Policies written in trust will immediately fall outside of the estate for IHT purposes
- This is very easy to arrange and is often cost free.
- Claim payments would be made directly to the person intended without delay
- There is no need to wait for probate which can be timely and costly.
- Probate rates paid to the government are changing from May 2017, another reason to minimise the value of ones estate at the time of death. An estate valued at £2m attracts a flat fee to grant probate of just £215 but from May 2017 this will become subject to a sliding scale and will jump to the top rate of £20’000. You should therefore make sure that you write the policy ‘in trust’. The money will then go into the trust and will not form part of your estate when you die, so sidestepping any potential IHT liability.
Health and Income Protection
There are a variety of policies available to help should you be affected by serious illness, unemployment or injury. Some are income replacement vehicles and others pay a lump sum on diagnosis of certain potentially life changing or life threatening illnesses. Products like these provide essential financial support, relieving the money worries will take the pressure off at a time when you should be convalescing.
If you are self-employed or your employer’s scheme provides restricted benefits consider how long it would be before financial hardship would start to set in should you be involved in an accident and be unable to return to work immediately or be affected by serious illness.
- Family Income Benefit – pays you a benefit if you cant work due to ill health or accidental injury. The benefits start after an agreed period know as the “deferred” period. This can fit in with you work benefits or reflect how long you think your savings will provide for. The longer the deferred period the lower the premium. If premiums are paid from taed income the benefits would normally be paid out tax free. Benefits can be paid until retirement age so of real value if you were never able to return to work
- Accident, Sickness and Unemployment Cover – is useful if you are worried about your financial position if you lost your job through ill health or redundancy. These plans can be taken to cover specific outgoings like mortgage payments or a personal loan or for a relatvely short term.
- Critical Illness Cover – provides a lump sum or regular payments (if you prefer) on dioagnosis of certain conditions. Most people think of Heart Attack, Cancer, Stroke and Multiple Sclerosis whereas most policies protect you against a much wider range of conditions, how wide depends on the actual policy although the Association of British Insurers has a minimum requirement that 23 conditions be covered, a good number of policies will exceed this.
There rarely is one answer to the type of cover people need to put in place. Individual circumstances, perceived priorities and budgets will prevail.