Wednesday 29 August 2012

Trusts. What are they, and why use them for insurance?

It's often said that less than 10% of life insurance policies are written in trust. Although not all policies are suitable for writing in trust, this still leaves a large number of policyholders who haven't taken advantage of this simple option. In this post, I'll explain what a trust is, the benefit of putting one in place, and question why more policies aren't in trust.

What exactly is a trust?

A trust is a relationship recognised by law whereby something is held by one party for the benefit of another. In respect of life insurance, there are normally three parties involved: the settlor (the policyholder); the trustee/s (the person/s to whom the insurance company will pay a claim); and the beneficiary/ies (the ultimate recipient of the money as intended by the policyholder). This may sound complex, in fact they are anything but: they simply allow someone to pass property on to another person at some point in the future.

Why write life insurance in trust?

There are several reasons to write life insurance in trust.
  1. Avoid probate delays. Probate is the legal process which must be completed before your estate can be distributed. This can take anything from a couple of months up to a year, and beyond in some cases. Probate delays can present a problem if an insurer has paid money into your estate and your family requires it sooner rather than later.
  2. Reduce an inheritance tax (IHT) bill. Benefit payed from a life insurance policy written in trust can be paid outside of your estate for IHT purposes.
  3. A trust enables you to choose your beneficiaries, thereby remaining in control of your assets.
  4. Being a simple process (often no more than a one page form), it is normally free of charge set up a trust.

So, why don't more people have one?

Most people I speak to who haven't written their life policy in trust simply weren't aware of trusts and their benefits. With people buying policies over the internet or from direct insurers on a non-advised basis, it may be some time before people are fully aware of their benefits.

Check your existing policies.

If you have a life insurance policy, and are not sure whether it is written in trust or not, it is worth checking. You can do this by asking your insurer or speak to a financial adviser.

Monday 27 August 2012

Could you cope financially if you were diagnosed with a serious illness?

Some things are more reliable than others - monthly bills, for example. Young or old, single or married, we all have financial obligations to meet each month; be it luxuries, like a satellite TV subscription or mobile phone contract, or the real essentials – like keeping a roof over your family's head. But some things - like our long-term health - can be less reliable. More than 1 in 3 people in the UK will develop some form of cancer during their lifetime, according to Cancer Research UK. If you became critically ill and were unable to work, those monthly expenses would still need to be covered if you wanted to maintain your lifestyle. Ask yourself: could you cope financially?

Better protecting your finances

An important part of financial planning is to ensure your protection arrangements remain appropriate for your needs. Many people take out life insurance which provides valuable cover and and is designed to pay out in the unfortunate event of your death. But by taking out Critical Illness Insurance, you could receive a tax-free lump sum or monthly income should you suffer a serious illness or a major injury. This could help towards paying off your mortgage, meeting monthly household bills, covering additional medical expenses, reducing the financial impact if you were unable to return to work - or anything else you might chose to spend it on.

Insurance premiums set to increase

Now is also a great time to review your protection needs. At the end of this year, new legislation will require insurance companies to ignore an individual’s gender when calculating premiums. This is expected to result in price rises for men and women in most cases – including for critical illness insurance. It’s therefore important you check your current financial protection needs before this change takes effect. The pricing changes may well lead to a rush of applications to insurance companies in the latter part of this year therefore contact your financial adviser now to help prevent you being caught out by this.

Act now to ensure you are financially protected

To ensure you and your family are financially protected, and to beat any price increases, it would be prudent to review your protection needs at the earliest opportunity. I have found that people tend to put off taking out insurance, as we all have seemingly more urgent, and sometimes more interesting things that need doing. And that is completely understandable. So, while the intention is in your mind, why not pick up the phone now, call your financial adviser, and ask for a protection review.

Saturday 25 August 2012

Losing sight of everyday threats could put your business at risk


If you are a business owner or a director, you are no doubt working harder than ever to steer the company through this difficult trading period. As result, your thoughts may be more focussed on the short-term needs of the company more than usual.

But it’s more important now that you don’t lose sight of the ongoing threats to your business – threats that could have an impact as severe as any market downturn.


Protecting your most important assets



If a director, co-owner or key individual within your business were to die, or become critically ill, it could have a serious impact on your company’s ability to trade. For instance:

  • How would the loss of their expertise and experience impact the business?
  • If they are a shareholder, what would happen to their shares? Could the business afford to buy them back?
  • How would your debtors and creditors react? Would loans be called in?

You probably already protect your company’s material assets, like premises, vehicles and equipment. Surely it makes sense to also protect the company’s most important assets – its people.

How you can obtain help


Some financial advisers often work with businesses offering advice on how best to protect them from the financial impact of unforeseen events.

There is a range of products that can give you peace of mind when it comes to the long-term stability of your business.

If it has been several years since, or if you have never conducted a review of your business's protection requirements, it would be a good idea to find a financial adviser who specialises in this area for an appointment. Don't leave your business unprotected until it is too late.

Friday 24 August 2012

Life Insurance Premiums Expected to Rise

From 21 December 2012, changes to the EU Gender Directive will mean insurers will no longer be able to use gender as an underwriting factor when setting premium rates. This change will affect all types of personal insurance with life, motor and annuities being among the most significant.

It's sensible to ask your financial adviser for a review of your protection needs before the end of September, as in most cases, life insurance for both men and women will increase (significantly for some) from December. Those who take out a policy before the Gender Directive, will lock in their premiums at this year's prices. Waiting until next year could cost women 22% more for term life insurance, as a compounding factor is also a change to the "I minus E" rule.

From 1 January 2013, life companies will no longer be able to offset the costs of selling life insurance against investment income. This is known as the Income minus Expenses or “I minus E” rule, which many life companies use to subsidise their protection premium rates. As a result, premiums could increase by approximately 10% to compensate.

The perfect storm of gender neutral pricing and I-E will result in life rates rising for the majority, with insurers likely to wrap up rate changes to cater for both gender and I-E together.

Top Tips

  1. Speak to a specialist adviser now. You need to allow enough time for underwriting, as you will need to be accepted on cover before the 21 December. In some cases underwriting can take several months, so make sure you speak to a good financial adviser, or a specialist protection adviser as soon as possible.
  2. Tell others you know who have gone through a life change recently (e.g. marriage, divorce, birth of a child, mortgage) to ask an adviser to review their insurance as soon as possible.