Life - Articles - Families urged to review life insurance


 An urgent review of life insurance policies is being called for after the figures from HM Revenue & Customs (HMRC) revealed bereaved families are being hit with unnecessary Inheritance Tax (IHT) bills totalling up to £216 million.

 The latest figures from the taxman show the problem is getting worse. More than 5,200 people left their families with an IHT bill on their life insurance pay-out in the 2011/12 tax year, up by around 5% in two years and averaging £41,000.

 Sean McCann, chartered financial planner at NFU Mutual, said: “This is completely unnecessary and should not be happening.

 “Life insurance policies should, wherever possible, be written into a trust to prevent a significant chunk going to the taxman. Otherwise, up to 40 per cent of the pay-out could be claimed by the taxman when it could be going to bereaved families instead.

 “Writing a policy into trust also has the benefit of speed of payment. When a policy has been written into trust, payment can reach the family bank account within three to four weeks. If it had to go through probate instead, it could delay payment for several months.

 “Even if you don’t think you have an IHT problem, the speed of pay-out from a policy in trust should be an incentive to review your policy.

 “Often, this money is vital to keeping the family business running, or means surviving families can make ends meet – whether it’s to replace lost income or to pay for extra childcare while the surviving parent goes out to work.

 ”Trusts are really simple to set up and, with most life insurance companies providing the forms free of charge, it shouldn’t cost anything other than spending a few more minutes to complete.

 “However, HM Revenue & Customs’ figures show around 75,000 people left behind a life insurance policy in 2011/12 which wasn’t written into a trust. That’s 75,000 families who could have been made worse off from an IHT bill or slow payment.”

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