Is it worth putting life insurance in trust?
Life insurance can provide a much-needed financial buffer for your surviving partner and family in the event of your death. This policy pays out a lump sum when the policyholder dies within the specified term. However, is it worth putting life insurance in trust and how would this work? We explain the benefits of enabling trustees to deal with policy claims.
If you already have adequate life cover in place, it can be easy to assume that there’s nothing more to be done. However, there are some extra steps you can take to ensure your loved ones are fully protected in the event of a claim.
Writing life insurance policies in trust
Having sufficient life insurance is an essential way to safeguard your loved ones’ financial future. So, why not go the extra mile by writing this policy in trust? By putting your life cover in trust you can give your trustees the authority to deal with the payout directly when you die.
Life insurance funds can be paid quickly to your beneficiaries without having to go through probate. Also, as life insurance policies are not considered part of your estate, they will not be subject to Inheritance Tax (IHT).
There are a few different trusts you can choose from:
- Discretionary trusts – your trustees can use your letter of wishes to make a decision on which beneficiaries should be paid.
- Survivor’s discretionary trust – when you take out a joint life insurance policy with a partner, they would be entitled to inherit the payout before your beneficiaries.
- Flexible trusts – this is where a default beneficiary would receive the full payout, unless your trustees appoint some funds to other discretionary beneficiaries.
- Absolute trusts – also known as ‘bare trusts’, once you have decided on your beneficiaries, they cannot be changed by a trustee in the future.
Update your life insurance policy
Putting your policy in trust does not have to be complicated. At Bubble Finance Hub, we have a team of experienced insurance advisers who can explain how this works. We can talk you through your options and help you choose the right trust for you and your beneficiaries.
It’s also worth noting that just because you’ve already purchased life insurance, it doesn’t mean that you no longer have to think about it. It’s important to check your policy regularly to make sure that you still have an appropriate level of cover. This is especially important after you’ve experienced a significant milestone, such as buying a house, getting married or having children.
If you haven’t already got a life insurance policy in place, then we can arrange this for you. You will be asked a series of personal questions, and you will need to disclose your age, health, family medical history, and your career. Different occupations and health conditions have varying risk levels, which will affect the price of the policy. We will explain everything you need to know so you understand how this type of policy works.
If you need to update your life insurance or you’d like to put your existing policy into trust, get in touch to speak to our advisers.
As with all insurance policies, conditions and exclusions will apply.
Thank you for reading our blog, Is it worth putting life insurance in trust?
Bubble Finance Hub