The Intermediary – February 2025 - Flipbook - Page 76
P RO T E C T I O N
Opinion
The importance of
insurance in
hole of life
insurance is
a valuable
tool in the
financial
planner’s kit,
and one which is oen unutilised,
particularly when it comes to affluent
clients with potential Inheritance Tax
(IHT) liabilities, or those who wish
to ensure that they are guaranteed to
leave a legacy.
‘Whole of life’ is a type of life
insurance policy that provides
coverage for the entire lifespan of
the insured individual, compared
to term life insurance, which covers
a specific period such as during a
mortgage term.
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The Intermediary | February 2025
It offers a guaranteed payout upon
the death of the insured, regardless
of when it occurs, rather than a
term policy which expires having
delivered no financial benefit to the
premium payer.
Key benefits
Guaranteed death benefit: The
primary advantage of whole of life
insurance is the certainty of a death
benefit. This lump sum payment
can provide a financial security
package for clients’ loved ones,
ensuring that funds are available
for expenses such as remaining
mortgage balances, funeral costs,
and a lump sum legacy to fund
future beneficiaries’ needs, like
education.
Estate planning: Whole of life
insurance plays a crucial role in
estate planning, particularly for
high-net-worth (HNW) individuals.
The death benefit can be used to
cover potential inheritance tax
liabilities, ensuring that assets can
be passed onto heirs without the
financial strain of liquidation. It can
also be used to equalise inheritances
among family members where
assets are not easily liquidated for
financial or sentimental reasons.
Cash value accumulation: Many
whole of life insurance policies
accumulate cash value over time.
This cash value grows tax-deferred
and can be accessed through policy
loans or withdrawals, providing a
source of funds for emergencies or
opportunities.
Inheritance Tax planning: If the
policy is wrien in interest, the
payout does not form parts of the
estate, meaning it can be used
to cover IHT liabilities without
increasing the taxable estate, and
can be paid out prior to probate.
This ensures that beneficiaries can
receive the full value of the estate
without needing to potentially sell
assets to pay inheritance tax.
Guaranteed premiums: Some
policies offer fixed premiums, so
your costs remain predictable.
This provides surety as to how
the premiums will be funded
ongoing, utilising excess annual gi
allowances to fund the premium
or fixed withdrawals from an
investment vehicle to fund the
guaranteed premium till death.
Lower cost premiums: Alternatively,
some policies provide the option to
commit to lower premiums in the
earlier years – typically reviewed
every 10 years – which allows the
client to afford to cover a potential
liability in the short-term while
implementing a financial planning
strategy to reduce future potential
liabilities such as IHT.
Despite its numerous benefits,
whole of life insurance is oen
underutilised in financial
planning. Several factors
contribute to this:
Cost: Whole of life insurance
guaranteed premiums are generally
higher than term life insurance
premiums, making it seem less
affordable. However, it’s important
to consider the long-term value
and guaranteed payout of whole
of life insurance compared to the
temporary coverage of term life
insurance.
Complexity: Policies can be
complex, with various features
and options that may be difficult
to understand. This can lead
to confusion and hesitation
among clients, as well as a lack
of confidence among advisers in
recommending it.
Misconceptions: There are
common misconceptions about
whole of life insurance, such as
it being solely for the wealthy or
