How life insurance can ease death tax bills

One way to guard against leaving your family with a large tax bill is to buy a life insurance policy.  These policies can either be for a term, typically covering a period of five to ten years, or for whole of life meaning that they are active until death.

In exchange for a monthly premium, calculated by insurers according to your age and health, a lump sum is paid on your death.  Premiums are either variable or guaranteed.  In the former case premiums can be raised by insurers and can possibly become unaffordable.

Guaranteed premiums start at a higher rate but give certainty over future costs.  If the policy is written in trust the sum insured will go to the beneficiaries and will not be subject to inheritance tax.  Any inheritance tax due has to be paid before a grant of probate can be issued and inheritors of an estate receive their share.  In some cases families have to find ways of meeting the tax.

Term or whole of life plans set up to pay into a trust do not form part of the deceased’s estate and are immediately available to the named beneficiaries of the trust, avoiding these difficulties.