Life assurance - keep going or with or without indexation?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82086483#Comment_82086483

You may be comparing whole life with term assurance.

Anyone on here would just be guessing at what you have. You really need to read the policy documents (or ask the insurer).

poseidon1

Given The quantum of the premium being paid this sounds like whole of life assurance.

The question is it a with profits contract (with an accumulating surrender value) or unit linked providing cover on a maximum cover basis with little or no surrender value.

The following article explains the distinction -

https://www.pmfi.co.uk/information/protection/?title=What+Is+Whole+of+Life+Assurance%3F&aid=15

If it transpires the contract is unit linked and is accruing little or no surrender value, consideration could be given to assigning the policy into trust if the intention is to retain until death. However if considering this option would need to determine whether payment of future premiums ( in trust) would attract the gifts out of surplus income exemption.

Transferring to trust ensures it does not form part of husband's estate on death thereby avoiding potential IHT if other assets are near or above the nil rate bands. The insurance company should be able to supply templates for a suitable trust format.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82088215#Comment_82088215

It's always been in trust.

I'm going to ask my IFA to investigate this further. His predecessor (same company) set this up.

silvercar

Spoke to my IFA. It has no residual value. So its either a question of keeping it going or keeping it going without indexation. It is whole of life, so it can continue until death.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82093471#Comment_82093471

Assuming the current premium can continue to support the £600k of cover for life with no further premium increases I might be inclined to keep it going but with no further indexation to the level of cover.

I would think most people would consider this a very worthwhile capital sum to pass to beneficiaries IHT free for an annual cost of around £5,000 p.a, and it would be a shame to terminate it now ( with no return) given the years it has already been in force.

I suspect a new whole of life policy for the same sum assured, would be considerably more expensive than what your husband is currently paying, and this alone suggests the policy is now too valuable in its potential long term return to contemplate terminating. Maybe worth getting a brand new policy quotation to help solidify your view of the value for money the current policy offers.

mrklaw

now you know the mechanics of it - a simple payout value no build up of value that can be cashed in - I think you go back to basics and review if it still has a job. Also worth checking if you don’t index link the payout will the monthly fee remain flat forever (keeps costs predictable)

• you don’t need it for a mortgage
• you don’t need it for the kids right now

so I’d turn my attention to retirement and potentially estate planning.

• if one of you passes before the other, is there a significant loss of income that cannot be covered by your existing savings?
• do you estimate to have significant savings when you both pass, such that IHT is likely payable on your estate? if so this could partly be used to cover any IHT bill without your executor needing to liquidate any of your estate to pay that bill
• if neither of the above are particularly relevant - is this affordable enough such that it could continue and be part of your legacy after you pass? I think you mentioned its in trust so shouldn’t be impacted by IHT etc - which may allow you to be reassured you have some support for kids/grandkids in place and perhaps give you freedom to spend down more freely of your current savings knowing you don’t need to leave a big pot from your savings as thats covered by this policy

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82093802#Comment_82093802

Interesting questions:

1. Not really, OH is winding down and partly retired
2. Yes. Though it's our home that has the value as well as big pension pots, which will trigger a massive IHT bill. The home being a very illiquid asset.
3. It is affordable, it's a question of whether it makes sense to keep it.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82093879#Comment_82093879

I believe you answered your own question by pointing out the substantial IHT exposure now arising by virtue of your large pension pots.

I am in no doubt that whole of life policies in trust will play an important role in the 'toolbox' of IFA IHT planning strategies where pension pots now create substantial IHT liabilities.

Your husband's policy has clearly found a new purpose in this regard in eventually contributing to replacing the cash drain on your joint estates by virtue of the impending IHT regime on pensions. Others in your circumstances may wish to consider implementing similar policies but at potentially higher cost.

QrizB

For context, we are early 60s and the sum assured is currrently 125 times the annual premiums.

1/125 is 0.008 (0.8%).

The ONS publish mortality tables here.

An average 60-year-old UK male has a 0.7761% chance of dying before they reach 61. OTOH an average 65-yo UK male has a 1.1976% chance of dying before reaching 66.

I'd assume that, as you age, the annual premiums will increase to follow your mortality chance - after all, insurance is only a viable business when most people pay more in than they ever get out.

silvercar

So the policy has the inflation adjustment every year. Every 5 years there is a full review. The next 5 year review of the policy is in 2 years time. The premiums could well jump at that point and become a burden. At which point we may well stop. Certainly in 7 years time it is more likely we will stop. In which case it may make more sense to take a 7 year life insurance policy now,