These policies can offer affordable cover for growing families. Family income benefit policies work in a similar way to ordinary life cover, but instead of a lump sum the policy pays out a regular income if the policyholder dies.

Parents of young children often consider this type of policy, and take it out jointly, as it means that if one of them were to die during the term of the policy, then an income would be paid out for a pre-determined period. So, for example, if you had a 20-year policy and were to die five years into it, then the policy would pay out a regular income for the remaining 15 years.

This type of policy can also be combined with critical illness cover.

Writing a policy in trust

This simple formality is now widely used to help pass money on swiftly and efficiently to loved ones on death. A trust is a legal arrangement that ensures the payout from your life policy can be made directly to your beneficiaries, for instance your wife or your children, and doesn’t form part of your estate, and therefore isn’t subject to Inheritance Tax.

In addition, the payment wouldn’t have to wait until the grant of probate (the legal document required to administer your estate) has been granted. Obtaining probate can be a lengthy and time-consuming process, but if a policy is written in trust, the proceeds can be paid out once a death certificate has been obtained.

Joint or single policies

Should couples have one policy or two? Although couples often share a lot of things, when it comes to life insurance it can make sense for each partner to have their own separate policy. A ‘single’ life policy provides cover for that person only, and pays out the amount of cover provided under the policy if the insured dies during the policy term.

By contrast, a ‘joint’ policy covers two lives, normally on what’s referred to as a ‘first death’ basis. This means that the policy pays out if during its term one of the policyholders dies. As the policy is designed to pay out only once, it will come to an end. So, in this case, the surviving partner would no longer have any life cover under this policy. If instead each had their own policy, the survivor would still have life cover in place.

Note:  all IHT solutions are regulated by the Financial Conduct Authority.

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