Listen to Coronavirus Patient Zero
Life Insurance - One More Step On The Insurance Ladder
The recently over 60’s are the post-war baby boomers. Their insurance needs are very different from that of a young family or someone just starting out in their first job. A typical 60 something couple will have raised their family, finished paying off their mortgage and are into or nearing retirement. More and more of this age group of people spend part of their year abroad or maybe are planning to move to the sunshine on a permanent basis. Maybe it would be a good idea to assess their insurance needs at this stage in their lives. Something that is almost certain to crop up is the worrying matter of inheritance tax.
House prices have risen considerably over the past years and the family home that suited their lifestyle some years ago will probably be worth an amount approaching or over the inheritance tax limit. Even if they downsize their property, they may invest in something like a holiday home and the actual capital is still there. Inheritance tax is charged on taxable estates with a value of more than £300,000 in the 2007/8 tax year. This amount rises annually – 2006/7 was £285,000 for instance. To work out the value of their estate, they will need to take the value of their home, savings, investments, life insurance policies, any business interests and any other assets which they have accumulated.
When the total of this has been reached, any liabilities will need to be deducted. Typically this will be any mortgage outstanding, loans and other debts. The remaining figure, less the amount exempt from Inheritance Tax is the one that Inheritance tax will be calculated from. Inheritance tax would be charge on the death of the second partner. There is no inheritance tax between spouses. To put it simply, if their estate – their assets minus their liabilities - is worth around £400,000, then using the 2007/8 allowance of £300,000 there would be £100,000 which would attract a tax of 40%. That’s £60,000 to their beneficiaries and £40,000 to the taxman. You may think this is a fairly large estate, but do consider what your home could be worth at today’s values. Now this couple may be quite happy to potentially give £40,000 of their hard earned money away, but we think probably not! The couple would be advised to take some specialist advice at this stage, but a solution could well be to take out some whole-of-life insurance cover. An amount that would cover the estimated inheritance tax bill would relieve their beneficiaries of any worries when the inevitable time comes.
The policy must be written “in trust” and the result will be that the payout will not be counted as part of the estate. By using this important proviso, there should be no delay in the payment of the policy to beneficiaries. Most policies designed to help with inheritance tax dues are investment linked and offered on a reviewable basis. The plan will be reviewed at five or maybe ten yearly intervals. If the investment part of the plan has not performed as hoped, then the cost of the premium could rise and our couple need to be aware of this. For an easy way to get some advice on this important subject, an on-line broker will be able to steer our couple towards the right product for them, at the right price.