Get a life... insurance policy

8 April 2011

a dog, yesterday

Have you got one? A life insurance policy? Do you not want your loved ones to be looked after in the event of your untimely death? Or do you just not like them that much...

Many people either have, or are thinking about getting a life insurance policy- some mortgage providers insist on it, but even if not, given how devastated your wife/husband/dog is going to be without you, a little nest egg to pay the mortgage off or keep them going might be a nice idea.

So, you buy an insurance policy for £150 grand. This means that your crying relatives will get £150 grand doesn’t it. Er, not necessarily.

You see, if you just buy a policy in your own name, the proceeds are yours, not theirs. This means that they will become part of your taxable Estate when you die. And that means that you may have to pay inheritance tax of up to 40% on that cash.

Before you start panicking, everyone will have a nil rate band, assuming you haven’t already made large gifts, of up to £325,000, but after you’ve taken your house out of it, there may not be quite so much left as you thought. And leaving your family £90,000 is quite different to the £150,000 you thought you were leaving.

But never fear, BitterWallet is here. There is a simple and easy procedure which means your insurance payout is not yours, and so cannot be liable to inheritance tax on your death. But insurance companies will never tell you about it. You have to tell them.

What you need to do is get the policy written in trust. That might sound scary, but all it means in practice is that you fill out another form. What you are doing, is getting your wife/husband/dog to insure your life, but that you will pay the premiums on their behalf (which you can do under IHT rules). Your wife/husband/dog is then the beneficiary of the policy and will receive 100% of the cash. Simples.

Note that the beneficiary of the policy has to have an insurable interest in you- husbands and wives, children and even business partners are fine, but your grouchy neighbour down the road is not. Theoretically your dog would have an insurable interest, after all it is dependent on you, but unfortunately most* dogs cannot sign legal documents.

So there you have it. A huge tax saving from your friendly neighbourhood BitterWallet. For free. Unless you want to pay me...

*there might be one. How do you know there isn’t.

TOPICS:   Insurance   Tax


  • Daniel
  • Spit D.
    Excuse me whilst I butter the stairs...
  • Sawyer
    I bet Harvey/Tonto from the Thinkbox and John Smith's ads can sign legal documents. He even landed a job in Midsomer Murders, so I fully expect him to be in some courtroom drama in the next few months.
  • GreyHeadTed
    Ummm... not strictly speaking accurate. Trusts can be used, but the article seems to be mistaking a "Life of Another" policy with a policy in Trust. With Life of Another, you can avoid trusts altogether. Instead, the wife (for example) is the OWNER of the policy, and the husband is the LIFE ASSURED. The premiums are paid for by the wife, and she owns the policy, so would be entitled to the proceeds. Of course, you'd still need a trust in place if both husband and wife were squished in the same freak piano-falling-from-above accident, but that's another situation.
  • veedubjai
    "but unfortunately most* dogs cannot sign legal documents." *there might be one. How do you know there isn’t. Question: OK, if dogs can not sign with paw-signiture then what about people who can not write. Could fingerprint (homo-sapien) or paw print (dog of course) will be sufficient to constitute the identity of one signitory?
  • Skymarshall
    "“but unfortunately most* dogs cannot sign legal documents.” *there might be one. How do you know there isn’t. Question: OK, if dogs can not sign with paw-signiture then what about people who can not write. Could fingerprint (homo-sapien) or paw print (dog of course) will be sufficient to constitute the identity of one signitory?" Fingerprint, possibly, as it unique to the individual. I believe I am correct in saying that paw-prints do not have unique distinguishing features and therefore, no. Also. There is no writing dog. I know because I am the all-knowing. End of.
  • amin
    Good to know.. But unfortunately I didn't really understand the most important section
  • spacebeagler
    GreyHeadTed is right; "Life of Another" is by far the best way to achieve the required outcome. It also has another effect; if a marriage falls apart it usually means that the husband/partner will stop paying his life cover premiums. This means no dosh if he pops his clogs if the wife is still financially dependent upon him (kids, alimony etc.). But, if she has a life of another and SHE continues the premiums, she would still receive the sum assured free of IHT. This is because "insurable interest" is estabished at the outset and does not change with future circumstances. In the event of a joint death, it is always assumed the the male dies first, so the sum assured would pass to her estate free of IHT. If they were married (and no other gifts had been made) her estate would have his IHT allownace added to hers to lighten the load, as it were. Lastly, many people go for "jont life" policies. I think it's better to have separate policies (term assurance only) as joint life premiums just tend to add the individual rates together and charge one policy fee so, for the cost of an extra policy fee you can insure that , in the case of joint death, twice the money will be paid out!

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