A Whole of Life Plan is a type of life insurance that provides coverage for the policyholder’s entire life, rather than for a fixed term like term life insurance. The policy pays out a lump sum to the designated beneficiaries upon the policyholder’s death, regardless of when that occurs, as long as premiums are maintained. This makes it an important financial planning tool, especially in the context of Inheritance Tax (IHT) planning.
How a Whole of Life Plan Works
In a Whole of Life Plan, the policyholder pays regular premiums throughout their lifetime. In exchange, the insurer guarantees a payout to their beneficiaries when the policyholder passes away. These policies are typically more expensive than term life insurance due to the lifelong coverage and the fact that a payout is inevitable.
One of the key benefits of a Whole of Life Plan is its potential to help with Inheritance Tax (IHT) planning. In the UK, IHT is charged on the value of an estate above a certain threshold, currently £325,000.00 (or £500,000.00 with the residence nil-rate band). When someone dies, their estate is subject to IHT at a rate of 40% on the amount above the threshold, which can leave beneficiaries with a significant tax bill.
A Whole of Life Plan can be used as a tool to cover the IHT liability, ensuring that beneficiaries don’t have to sell assets, such as property, to pay the tax. By taking out a Whole of Life policy, the policyholder can ensure that their estate receives a lump sum payout upon their death, which can be used specifically to cover any IHT due.
Provides Liquidity
The death benefit from a Whole of Life Plan provides immediate cash to cover IHT bills, preventing heirs from having to sell valuable assets or property.
Certainty
As the policy is in place for life, the policyholder can be confident that the payout will occur when needed, regardless of when they pass away.
Tax Free Payout
The lump sum paid from a Whole of Life policy is typically exempt from IHT, which ensures the amount received is available for beneficiaries to use as needed.
Whole of Life Insurance is an effective way to mitigate the financial impact of IHT on an estate. By planning ahead with this type of policy, individuals can ensure that their beneficiaries are not burdened by hefty tax liabilities, providing peace of mind and financial security for loved ones.
If you have any questions regarding protecting your family or planning for Inheritance Tax please get in touch with our team of qualified financial advisers for a no obligation chat.
The earliest known life insurance policy was made in Royal Exchange, London on 18 June 1583. A Richard Martin insured a William Gybbons, paying thirteen merchants 30 pounds for 400 if the insured dies within one year.
The required coverage of protection will depend on factors such as outstanding debts (e.g., mortgage), future family expenses and your income. Our financial advisers will work with you to understand your specific circumstances and help you determine an appropriate level of cover.
Yes, it’s possible to hold multiple policies to cover different needs, such as a mortgage protection and family income protection.
Generally, payouts are tax-free. However, placing the policy in trust can help avoid potential inheritance tax implications.
Standard policies typically cover death from illnesses and accidents but may exclude certain circumstances like dangerous sports or activities. You will need to disclose any such activity when you make your application for the cover.
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