The payout from a life insurance plan is normally tax free.
However, if the plan is not set up in trust, you should remember that any benefits paid are likely to form part of the deceased's estate, unless the money is being paid to a charity.
If the payout and the existing estate value nudges the estate over the threshold for paying no inheritance tax, then any amount over the threshold would be liable for inheritance tax. The long standing inheritance tax rules changed significantly in October 2007 and whilst potentially it is now less likely for married couples or civil partners with estates worth less than £624,000 to pay any inheritance tax, it is still an area that should be considered when setting up any life insurance plans of significant value.
If you are hoping to leave an inheritance to your family, it's likely that you'll want to pass on as little as possible to the taxman at the same time.
You can address this by opting to put your life insurance plans in Trust which can also help to ensure that the right people receive the correct money at the right time. This also helps to provide money to your beneficiaries quickly with out the need to wait for probate.
Placing a life insurance policy in Trust is a complex issue, and people considering this option should always seek advice from their solicitor and independent financial adviser before proceeding.
If you're concerned about getting life insurance in place as soon as possible should consult our experts at Money Minder for expert help and advice.