Could Whole of Life Insurance Help Protect Your Family?.

When you think about leaving a legacy for your family, you may think about your home, investments, savings, or pension. But there is another question worth considering:

How will your family pay any Inheritance Tax (IHT) that may be due?

With changes to the way pensions will be treated for Inheritance Tax from April 2027, this is becoming an increasingly important consideration for families who have built up significant wealth.
Our recent blog post, ‘Could Your Pension Become Part of Your Inheritance Tax Bill?’, explores how the upcoming changes could affect your estate and why reviewing your plans now may be worthwhile.

But understanding a potential IHT liability is only one part of the conversation. The next question is: What could you do about it? One option that may be considered as part of wider estate planning is Whole of Life Insurance.

What is Whole of Life Insurance?

Unlike a standard term life insurance policy, which provides cover for a specified period, Whole of Life Insurance is designed to provide cover for the rest of your life, provided the policy remains in force and the required premiums are paid. 

Because a claim is expected to be made at some point, Whole of Life cover can be more expensive than some forms of term assurance.
The key difference is that it can provide a known amount of money on death, which means it can potentially be used as part of a plan to help your beneficiaries meet future financial liabilities.

How Could it Help With Inheritance Tax?

If your estate is liable for Inheritance Tax when you die, your beneficiaries may need to find the money to pay the tax. For families with a significant proportion of their wealth tied up in property, investments or other assets, finding that money isn't always straightforward.

Selling an asset may be one option, but this could mean that your family has to sell something that they would have preferred to keep.
This is where Whole of Life Insurance could potentially form part of an estate planning strategy. A policy can be arranged to provide a lump sum on death, which could be used by your beneficiaries to help meet an IHT liability.

The Importance of a Trust

When considering Whole of Life Insurance for estate planning purposes, the way the policy is structured is particularly important.

A policy may be placed into an appropriate trust so that the proceeds can potentially be paid directly to the intended beneficiaries rather than forming part of the policyholder's estate.
This can also help ensure that the money is available when it is needed.

However, trusts and their tax treatment can be complex and putting a policy into trust does not automatically make every arrangement free from Inheritance Tax. The suitability of a trust will depend on your individual circumstances and should be considered as part of wider estate planning.

Why Could This Become More Relevant From 2027?

The planned changes to pensions from April 2027 mean that many people who previously viewed their pension as a tax-efficient way of passing wealth to their family may need to reconsider their overall estate plan.
From 6th April 2027, most unused pension funds and pension death benefits are due to be brought into the value of an estate for IHT purposes.

This doesn't mean that everyone with a pension will suddenly have an IHT liability. Your overall estate, available allowances and individual circumstances all need to be considered.

However, for some families, the change could increase the amount of wealth that potentially falls within the IHT net. That makes it even more important to consider where any potential tax liability would be paid from.

A Whole of Life policy isn't Just About Tax

Although IHT planning can be one reason for considering Whole of Life Insurance, it isn't the only one. Depending on your circumstances, Whole of Life cover could also be considered where you want to:

• Leave a guaranteed financial legacy for your family.
• Provide money towards funeral expenses.
• Help provide funds for beneficiaries when you die.
• Create a source of liquidity to help meet future liabilities.
• Pass on a specific amount to a chosen beneficiary.

The right approach will depend on what you are trying to achieve and how your wider financial plan is structured.

Is Whole of Life Insurance Right For You?

There is no one-size-fits-all solution to estate planning. For some people, Whole of Life Insurance could form a useful part of their plans. For others, there may be different or additional strategies that are more appropriate.

It is important to consider the cost of the premiums, the level of cover required, your health and circumstances, the value and structure of your estate and what you ultimately want to leave behind.

This is why Whole of Life Insurance should generally be considered as part of a wider financial and estate planning strategy, rather than simply as a way of avoiding Inheritance Tax.

Start Planning Before You Need To

Estate planning is ultimately about making sure that your wealth goes where you want it to, in the most appropriate way possible.

With the 2027 IHT changes on the horizon, it could be a good time to look at your estate as a whole and consider whether your existing plans still reflect what you want to achieve.