Will your loved ones pay tax on the pay-out from your life insurance?
Life insurance can come with a lot of questions so it’s important to know the ins and outs of your policy. Tax can be confusing and the whole point of having a life insurance policy in place is to ensure your loved ones are financially looked after when you’re gone.
We want to address one of the top asked questions about life insurance and tax - do beneficiaries pay tax on life insurance?
How does the pay-out from a life insurance policy work?
If a life insurance policy is going to pay-out, it sadly means someone is either terminally ill or has passed away. But there are ways to ensure the pay-out gets to your loved ones as quickly as possible.
By putting your life insurance policy into trust, you can mitigate inheritance tax and ensure that your loved ones receive the pay-out as quickly as possible.
If the policy has been placed into trust then it means that the policyholder (the person who took out the policy) has passed away or is terminally ill, so the trustee (the person who has been allocated to manage the trust) will ensure the beneficiary receives the pay-out from the policy.
Inheritance tax
People often decide to turn a blind eye when tax is talked about but there are some bits you should pay attention to, especially if you have a life insurance policy or if you’re thinking of getting one!
Inheritance tax is a type of tax that is payable by a person who inherits money, property, assets or possessions from a person who has passed away.
When you pass away, your life insurance policy may be subject to inheritance tax if it forms part of your estate. But one way to mitigate inheritance tax is by placing your policy into trust.
What is an estate and is your life insurance part of it?
Everything owned by a person when they die is their estate. Whether this is your land, property, money or possessions - it will all generally go into your estate when you pass away.
The one way to ensure the pay-out from your life insurance policy doesn’t go into your estate is if you put your policy into trust.
What is a beneficiary?
If you’re a beneficiary, that means someone has chosen you to receive all of or a selected percentage of the pay-out from a life insurance policy.
What about income tax?
There’s all sorts of life insurance policies out there. Whether it’s a critical illness policy, level life insurance policy, mortgage protection or income protection - the pay-out will always be from income tax. So you can rest assured knowing that your loved ones would be financially protected, if the worst were to happen.
Our free trust service
At Busy Bee, we offer a free trust service for all of our customers and when it comes to your life insurance policy, we really like to stress the importance of having a trust in place.
Having your life insurance in trust means that you can mitigate inheritance tax and will ensure that your loved ones receive the money as quickly as possible. This is because you will have set out the details of the people or person you want to receive the pay-out from the policy in your trust form. It also helps you avoid something called probate.
What is probate?
In layman's terms, probate is simply the legal right to deal with someone’s estate when they die.
By putting your life insurance policy in trust, you can avoid this long drawn out legal process. It’s a pretty great trade - just around 15 minutes of your time to complete your forms (we’ll do the rest) and you could save your loved ones 6-12 months (which is sometimes how long probate can take).
How does our trust service work?
When your life insurance policy is set up and you’re happy with everything, we always advise you to complete your trust forms.
Your forms will be sent to you via email or post (whichever you prefer) and one of our trust team will get in touch to talk you through the forms and answer any questions you may have.
Once you have completed your forms we will get them sent to your life insurance provider and if they come back with any amendments then we will go back and forth with your provider, so you don’t have to. We also pay for any postage costs for any amendments that would need to be made, ensuring that our trust service remains completely free.
How do we help?
At Busy Bee, we pride ourselves on our customer service. We can help you find the best cover for you and your loved ones but our award-winning service doesn’t stop there. Our aftercare includes a personalised set of documents from our customer care team, detailing the conversation you had when you took out your life insurance policy.
After you’ve had time to go over your documents, our customer care team will call you to confirm you’re happy with your life insurance policy. We will also be on hand if/when the time comes to make a claim on your cover. Our friendly claims team will liaise with your life insurance provider on your behalf, so you don’t have to go through the process alone and to help to get your claim sorted as quickly as possible. Click the button below to get started with your life insurance policy today!