Which type of life cover pays out tax-free?
There are two main kinds of life insurance, and they behave differently when it comes to inheritance tax. The good news is that both can be written in trust, which is what keeps the payout out of your estate.
Term assurance
Covers you for a set number of years, for example while you have a mortgage or children at home. It only pays out if you die within that term, so it is usually the cheapest option. Ideal for protecting your family during the years they most depend on you.
Whole of life
Covers you for your entire life, so it is designed to pay out whenever you die. Because it always pays out, it is the type most often used for inheritance tax planning: to leave a tax-free lump sum (written in trust) that can help your family cover a future tax bill.
Which is right for you?
It depends on why you want the cover, for how long, and what you can afford. An independent, FCA-regulated adviser can help you weigh term against whole of life for your own situation, and make sure whichever you choose is written in trust.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your circumstances and can change. Please speak to a qualified, FCA-regulated adviser before acting.