Whole of life assurance (WOL)
The insurance designed to last as long as you do
Although life insurance and critical illness insurance are there to protect you against the worse case scenario, many clients do not have this type of cover in place because they do not like the idea of paying a premium for a benefit that may never be required.
If you share this opinion, Whole of Life (WOL) insurance may be the perfect cover for you.
What is WOL insurance?
This policy is designed to pay out a cash lump sum on death, whenever it occurs.
Some policies solely provide life cover, whilst others have an investment element.
How is WOL linked to Inheritance Tax (IHT)?
A popular reason for taking out WOL cover is to cover any inheritance tax (IHT) liability. This will help your loved ones when dealing with your estate and can help prevent a forced sale of your home or other assets, if there is no available cash within your estate to pay for IHT.
This protection can provide you with piece of mind that you are not leaving your family with a large tax bill to pay when you are gone.
IHT is charged at 40% on all of your assets over the £325,000 nil-rate band (fixed until 2021), unless you leave some/all of your estate to your spouse or civil partner.
The residence nil-rate band of £125,000 has also recently been introduced and is available for individuals passing on their home to direct descendants.
Writing WOL under trust
It is extremely important to write this type of policy in trust, to prevent the insurance pay-out becoming part of your estate and therefore subject to IHT.
We recommended that you take out this policy as early as you can, as the older you get the more expensive the premiums become, especially if you have heath issues.
Many WOL policies will be subject to a review of premiums and sum assured periodically, usually every 10 years. At this point, the provider may increase your premiums or reduce your sum assured.
Some plans are set up to pay premiums until a certain age, such as retirement, with the cover to continue until death.
As this is a complex product, it is extremely important to take financial advice when setting up WOL cover. If you already have a WOL policy in place, ask your adviser to review your policy documents to ensure you fully understand of all of the plan features.