Life insurance and tax

Life insurance and tax

Life insurance and tax

From inheritance tax to non-qualifying policies, our easy-to-understand guide looks at exactly what the rules are when it comes paying tax on life insurance.

James Martin Content Writer
3
minute read
posted

What if I die and leave a spouse or civil partner?

When you die, your assets are transferred to your surviving partner along with any of your unused tax-free allowance. Their estate will only be taxed, after they pass away, if it’s valued at more than £650,000.

What if I die and leave a spouse or civil partner?

How could I reduce inheritance tax through life insurance?

You could pay less tax by getting a whole of life insurance policy. This type of policy is typically used to mitigate inheritance tax. That is, the tax which has to be paid by a person who inherits money or property; or is taken as a levy on the estate of a person who’s passed away. With this policy type, any pay-out amount should cover an inheritance tax bill. Learn more about the benefits of whole of life cover.

What else could I do?

The whole point of having life insurance is to make sure those you leave behind are financially secure, and one way to avoid inheritance tax could be to set up your policy ‘in trust’. By putting a life insurance policy in trust, you’re separating it from your estate, which means it can’t be included when it comes to totting up how much you have in total. 

Any assets in a trust will be overseen by ‘trustees’ who you can choose – they’ll make sure the money you’ve set aside in the trust goes to who it’s supposed to. Trustees can be family members, friends or your solicitor. It’s not complicated to do and your insurance provider should be able to help you.

How does a life insurance pay-out work?

Life insurance is typically paid out when you pass away. It can be paid out in one lump sum or at regular intervals – it depends on your policy. The amount of money paid out will depend on the policy and cover you’ve agreed on with your insurance provider. If you don’t yet have life insurance, our simple guide could help you find out how much cover you might need, based on your circumstances.

How does a life insurance pay-out work?

Compare life insurance quotes

Compare the Market data from May 2018 found that half of our customers could benefit by paying just £6.03 for a regular monthly premium. That’s based on a £100,000 decreasing term policy over 10 years with guaranteed premiums for a 30 year old non-smoker. 

So why not get a quote for life insurance today and see if you can find a premium that works for you and your family?

Compare life insurance

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