Life Insurance
To most people life insurance is a boring subject but it’s very important to think about because it means your family are taken care of and gives both you and them peace of mind.
Life insurance provides either a lump sum or a series of smaller sums to your dependents in the event of your death or a terminal illness. If nobody is dependent on you, you do not need life cover at all.
Policies vary widely but it is important not to mix up ‘whole of life’ insurance and ‘term’ insurance. If you buy term life and are still alive at the end of the policy period you get nothing; it only pays out if you die within the set period. With whole of life cover you must get a payout; it pays out whenever you die.
The payout from a life insurance policy is generally free of deductions for income tax - by itself, it is tax-free. However, if the payout, when added to the deceased's estate, pushes the entire estate over the inheritance tax threshold, then any amount over the threshold would be liable for tax. In order to avoid paying tax on a life insurance payout, policyholders can opt to write the policy in Trust.
