Whole of Life Cover Explained: FAQs

If your estate value is over the Nil Rate Band (NRB), your beneficiaries may be faced with the burden of an Inheritance Tax (IHT) bill payable to HMRC (currently 40%), on part of the estate value. However, there are a range of alternative planning strategies that can be implemented to manage this scenario, including Whole of Life Cover.

Below, Chartered Financial Planner Coreena Dutton, who specialises in later life planning and financial protection, answers some of the frequently asked questions about Whole of Life Cover.

Whole of Life Cover (WOL), unlike Term Assurance such as standard Life Insurance policies, is paid for throughout the rest of your life and offers a guaranteed lump sum upon death, whenever that may occur. A lot of people use WOL cover to pay an IHT bill, or to help cover the costs of their funeral. Term Assurance only covers you for a specific amount of time. Most people take out Term Assurance to cover the amount of their mortgage, for example, which you may only want until you have paid the debt in full. However, there are many other reasons why you might need Term Assurance, for example to ensure your family are provided for in the event of death or serious illness.

Whole of Life cover premiums can be more expensive than Term Assurance policies, as it will payout on death whenever that occurs, and so it is vital to consider the affordability and suitability of this cover beforehand, which a trusted Independent Financial Adviser can assist with.

Despite the higher costs, however, the key benefit of Whole of Life Cover is the peace of mind that there will be a guaranteed lump sum paid out upon your death, which does not need to go through probate, and your loved ones are not left to pay a hefty IHT bill when you are no longer there.

Unlike Term Assurance, there is not generally an age limit when it comes to Whole of Life Cover, but this depends on the individual provider. A good point to note, however, is that as you age your health can deteriorate and so the earlier you set up WOL cover the cheaper it tends to be. Of course, however, it is subject to medical underwriting therefore this is not guaranteed.

When using a WOL policy for IHT planning, it is paramount that the plan is written into trust for the beneficiaries. In the event of a valid claim, this means the funds will be payable to the beneficiaries tax-free and can then be used to pay towards any calculated IHT liability. In the absence of a trust, the policy would form part of your estate, thus further adding to the inheritance tax problem.

Instead of paying monthly premiums into an insurance policy, some people prefer to save or invest to cover any additional bills such as IHT. However, as no one can predict when they will pass away, you risk not having the same amount of funds upon death with saving or investing, as there is no guarantee of how long you will be investing for, or how much it will grow. However, with a Whole of Life Policy there is much more certainty, giving you peace of mind from day one.

Read more in our case study example here: https://www.integrity365.co.uk/whole-of-life-and-inheritance-tax/

The key to finding the right financial protection for you, is to assess your own individual circumstances and seek professional advice. If you would like to find out more about Whole of Life Cover and Inheritance Tax Planning, please do not hesitate to get in touch with Chartered Financial Planner Coreena Dutton on 0117 450 1300.