Life insurance taxable?

spark240

i keep getting cold calls offering to "help" me...to review our life insurance, ( we have a joint policy with Aviva)

These helpers are telling me if my policy isnt in a trust then its liable for tax on payout and can take months to get any money.

Alternatively of course, they can help me sort this....no doubt with some benefit to them.

A quick Google search says that its most unlikely that Life insurance payouts are liable for any tax...

What you reckon?

  

   

octatonic

I have no idea about the specifics but I personally never accept any cold call offers.
Odds are it is some sort of scam, or just a way to get some money out of you at some point.

Call Aviva and ask them.
Otherwise contact an accountant.

ESBlonde

iirc the beneficiaries of life cover are not liable for tax on a payout. But if you are the beneficiary and add it to your estate before death, it might take your estate above the taxable threshold so that the beneficiaries of your will/estate are liable to some taxation. Your estate includes cash, house and assets so it is concievable there may be a liability in that instance. Simple way to avoid that is to invest the cash in drugs and hookers before you die, then just waste the rest.

munckee

ESBlonde said:

iirc the beneficiaries of life cover are not liable for tax on a payout. But if you are the beneficiary and add it to your estate before death, it might take your estate above the taxable threshold so that the beneficiaries of your will/estate are liable to some taxation. Your estate includes cash, house and assets so it is concievable there may be a liability in that instance. Simple way to avoid that is to invest the cash in drugs and hookers before you die, then just waste the rest.

My new financial advisor - thats the kind of advice I need, "go on son!"

ESBlonde

Word of caution, never surrender a life policy with the intention of replacing it with a 'better' deal.

1) Premiums/returns are based on your age at the start of the policy, so being older automatically means a worse return.

2) Typically the first years premiums make up the commission for the seller, so it means you lose the value of that in the investment return.

If you do have or are likely to have a decent estate at retirement, you are advised to seek financial planning assistance from a professional. As things stand at present your house, property, pension and shares can be taken by the state to fund your long term care if that should be the case. If you have family to whom you want to leave a legacy, you need to act sooner rather than later, there are legal tools and means to protect the family wealth.

Iamnobody

I’m not convinced a joint account is the best type of policy. Double check the TandC’s.

Some joint policies only pay out on the first death.

Also I’m insured for more than my wife as I would be a bigger financial loss to the family operation.

Haych

I get a call from the "Life Insurance Review Team" about once every six months, offering me the chance to review my policy.  I smell a scam as soon as they start talking.  They usually have some credible information that makes it seem like they are the real deal - the seem to know with whom I hold policies.

However, when I ask who they are and where they are calling from all they will tell me is "The Life Insurance Review Team".  I usually then ask for an address of their organisation, they either get very vague at this point or just hang up.  I've never got more out of them than they are in Swansea.  If I ask for a street address or postcode they become very defensive.

Needless to say I never take any advice from them or listen to anything they have to say.  I find it quite entertaining and it usually kills five minutes of my day so I haven't blocked them yet.  I think last time they called I told them I needed to take them through security and could they confirm their postcode and the first line of their address - my kids thought that was scary for some reason. 

I reckon it's highly likely the OPs cold calls are from a similar organisation, if not the same one.  Just ignore.

spark240

Iamnobody said:

I’m not convinced a joint account is the best type of policy. Double check the TandC’s.

Some joint policies only pay out on the first death.

Also I’m insured for more than my wife as I would be a bigger financial loss to the family operation.

Err....so whos left with the money when the 2nd person dies?

spark240

Haych said:

I get a call from the "Life Insurance Review Team" about once every six months, offering me the chance to review my policy.  I smell a scam as soon as they start talking.  They usually have some credible information that makes it seem like they are the real deal - the seem to know with whom I hold policies.

However, when I ask who they are and where they are calling from all they will tell me is "The Life Insurance Review Team".  I usually then ask for an address of their organisation, they either get very vague at this point or just hang up.  I've never got more out of them than they are in Swansea.  If I ask for a street address or postcode they become very defensive.

Needless to say I never take any advice from them or listen to anything they have to say.  I find it quite entertaining and it usually kills five minutes of my day so I haven't blocked them yet.  I think last time they called I told them I needed to take them through security and could they confirm their postcode and the first line of their address - my kids thought that was scary for some reason. 

I reckon it's highly likely the OPs cold calls are from a similar organisation, if not the same one.  Just ignore.

Indeed this is the same...I did check my policy, its a joint deal term assured with payout on first death, I think when we did it, it was just long enough to cover the mortgage term, so it got payed off if one of us made an early exit.   

Brize

Yes, life insurance policies should be written in trust.

A joint policy may not be the best way to arrange your life insurance.

Speak to a reputable financial adviser or a specialist life insurance broker to get independent advice.

The cold-callers are probably lead generators who will pass your details onto a regulated firm for a referral fee - there is absolutely no way that a regulated firm would withhold their identity.

spark240

Yes, life insurance policies should be written in trust.

Why ?...a Google search suggests theres no reason to do this?

A joint policy may not be the best way to arrange your life insurance.

Why not ?

Philly_Q

My knowledge here is sketchy at best, but I think putting the policy in trust is an inheritance tax (as opposed to income tax) planning point. 

If it's in trust, it doesn't form part of your estate for IHT purposes and (depending on the type of trust) it can pay out to the beneficiaries without having to wait for probate.

My dad set up some investment bonds, in trust, insured on his life and they paid out immediately when he died, even though we haven't got probate yet.

ToneControl

By default your life insurance pays out into your estate
your estate is subject to inheritance tax (IHT)
If the estate is below the threshold, this makes no difference for tax, but the people to whom you leave your cash to will have a long delay before they get it. This can cause problems with paying bills, mortgages, etc

If it's a very big insurance policy, or your estate (i.e. house) is worth more than the IHT, then the estate will pay IHT on the total before it is split to those in your will

If you set the insurance up "in trust", then the cash goes immediately, tax free to the beneficiaries 

Having said all that, AFAIK if you leave a house to anyone (including your spouse) that has a mortgage on it, you have to pay the stamp duty on the mortgage amount - if I understand this correctly, you should make sure that (if below the IHT limit) you leave enough of the insurance to your estate to pay off your mortgages

Brize

spark240 said:

Yes, life insurance policies should be written in trust.

Why ?...a Google search suggests theres no reason to do this?

To keep the lump sum outside of your estate for IHT purposes, and so that the money can be accessed by the beneficiaries immediately, rather than them having to wait for probate to be completed.
 

A joint policy may not be the best way to arrange your life insurance.

Why not ?

For a similar premium you may be able to buy two policies. If you and your partner perished in the same car accident, for example, two policies would result in two payouts, wheres a joint policy would only pay out on one death.

ToneControl

Brize said:

spark240 said:

Yes, life insurance policies should be written in trust.

Why ?...a Google search suggests theres no reason to do this?

To keep the lump sum outside of your estate for IHT purposes, and so that the money can be accessed by the beneficiaries immediately, rather than them having to wait for probate to be completed.
 

A joint policy may not be the best way to arrange your life insurance.

Why not ?

For a similar premium you may be able to buy two policies. If you and your partner perished in the same car accident, for example, two policies would result in two payouts, wheres a joint policy would only pay out on one death.

also it is very much more expensive to buy policies when you are older, and I suspect it could be messy is a couple split up half way through the policy

Iamnobody

spark240 said:

Iamnobody said:

I’m not convinced a joint account is the best type of policy. Double check the TandC’s.

Some joint policies only pay out on the first death.

Also I’m insured for more than my wife as I would be a bigger financial loss to the family operation.

Err....so whos left with the money when the 2nd person dies?

On our case it’s the kids. And as above if we both perished (nice turn of phrase) the kids will be significantly wealthier.

We have critical illness as well - same deal on a joint policy only one payout.

spark240

No kids here...Im not too fussed how much the estate is worth if we both get wiped out.