Life Insurance Update on the position of life policies Written in Trust

On 4 th April we alerted our readers to the apparent implications of the changes

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Life Insurance News

announced by the Chancellor in his latest budget.

By Thursday last week the estimates of the numbers of people that could be hit by the new anti-trust provisions in the recent budget hit 4.5 million. Then the following day the draft legislation for the Finance Bill was published - and the estimates fell to 1 million people.

So, with specific reference to life insurance policies written in trust, what's happening?

Well first of all, we have to make the point that we are talking about the draft Finance Bill and it's three months before that legislation will become law. It still has to pass through parliament and it's possible that the situation could change. If it does we will keep you informed.

On Friday the Government retreated from its previous position that existing life policies written in trust will be caught by the new legislation. The position now is that if your life insurance policy was written in trust before budget day 2006, then the money in the trust remains totally free of tax and fees. That's one headache out of the way.

However, if your policy was written in trust after the 2006 budget day, then the new rules do apply.

Gordon Brown's latest budget has changed the tax rules on life insurance policies written in trust. Regular readers of our Blog will know that we have consistently reminded people taking out life insurance, that they should have their policy written in trust in order to avoid future Inheritance Tax (IHT).

The new rules introduced at the recent budget mean that even if your policy is written in trust and there is a claim on your policy, your estate will have to pay a tax charge of up to 6% on the value of the payout that comes above the IHT threshold of £285,00. This new rule applies from 5th April 2006.

Whilst this new tax is not to be welcomed, the new tax is only 6% which is still better than the 40% your estate would have to pay if your life insurance policy had not been written in trust. So, we believe that it is still worthwhile writing your life insurance policy in trust.

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Did you Know?
The words term assurance are used by many people when what they really want is term insurance, more commonly known as life insurance.

There is no investment element within life insurance and so there's no payout if the policy reaches its termination date. A life insurance policy only pays out if the policyholder were to die (or become terminally ill and death is anticipated within 12 months of diagnosis - other conditions may apply), before the policy's termination date.

Did you know?
Buying your car insurance policy online guarantees you the best deals. That's why 53% of all car insurance is now bought online. And when it comes to renewal time, shop around the Internet again! Please don't accept a renewal notice automatically without first checking out prices on the 'net - there's a good chance that you can still get it cheaper!

Today's Tip
If you want a cheap car insurance quotation then make sure that you get some quotations from car insurance brokers. Brokers automatically compare prices from the various insurance companies and offer you the best deals. And remember that cheapest is not always best - always check out the details of the cover - for example, whether a courtesy car is provided if your car is being repaired and whether legal assistance or windscreen cover is included. You also need to check out the excess on the policy.

Did you Know?
If you smoke, the cost of your life insurance will be about double. And it's no use just giving it up a few weeks or months before you apply. Most life assurance companies say you mustn't have smoked for a least 12 months prior to the application - and some insurers extend this to 5 years!