What is Whole of Life Assurance?

For those with large estates and potentially significant IHT liabilities, an effective way to plan (subject to age and health) can be to utilise a Whole of Life Assurance contract.

Put simply, this is a Life Assurance contract, normally arranged on a joint life, second death basis, written under a Discretionary Trust for the intended beneficiaries of an estate.

Therefore upon death, the sum assured can bypass the estate, avoid probate, and be utilised by the beneficiaries to help pay any IHT liability which will in turn release estate assets.

The level of life cover can be fixed from the start and the monthly premium can also be arranged on a guaranteed basis, meaning that a fixed sum assured and cost is known from the outset. So, as an example, for a male aged 54, female aged 54, both non-smokers, with an estate value of £2,650,000 and assuming they will both be entitled to the current nil rate band of £325,000, they would have a potential IHT liability of £800,000.

A guaranteed Whole of Life contract (assuming health accepted as standard) would cost £760 per month (£9,120 per annum) for a guaranteed sum assured of £800,000.*

This means that either party would need to live for 88 years to pay in premiums equal to what is guaranteed to be paid out! Taking this a stage further, should they invest a sum of £182,400 and receive a 5% yield (£9120 per annum), the return from the investment would fund the cost of the premiums needed to remove their IHT liability in full.

Comparing this to investing in a Business Relief qualifying investment, they would need to invest £2,000,000 in order to save £800,000 Inheritance Tax.

*Source IRESS

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