Is it time for intermediaries to look at whole of life cover as more than an Inheritance Tax planning tool and to take a multi-usage approach, asks Jennifer Gilchrist.
The idea is that changing to the non profit format will give more intermediaries the chance to sell the product because, unlike with the unit-linked version, there is no need to be regulated by the Financial Services Authority (FSA) to conduct investment business. If ICOB registered advisers can start to appreciate the very real flexibility offered by whole of life policies we will start to see a significant uplift in sales volumes.
The key message is that whole of life cover is not just simply an Inheritance Tax (IHT) planning tool, used primarily for keeping money outside the estate via joint life policies that pay out on the second death.
Apart from anything else, its appeal in this respect dipped in response to the IHT rule changes introduced in October 2007 which allow any unused nil rate band from a late spouse or civil partner to be transferred for the use of the second spouse or civil partner when they die.
Couples who make use of this “transferable nil rate band” can therefore avoid having to pay IHT on amounts of up to £650,000, meaning that – according to HMRC – only around 3% of estates currently pay any IHT at all.
While this 3% can still provide very attractive opportunities to sell some meaty whole-of life contracts, it only really constitutes a niche area, so advisers should be alert to a range of other opportunities for putting whole of life to good effect.
The most obvious of these is to use the product for clients who simply want to be sure of passing on some money to their next of kin but who might not be in a position to do so unless they specifically commit to making regular payments for the purpose.
With many people now relying on their homes as alternatives to pensions in their old age, they might find there is little left over to pass down a generation once they have significantly downsized their property or taken out an equity release plan. But using a whole of life policy can enable them to ring-fence money specifically for the benefit of their heirs.
Furthermore, this does not have to be the sole use for which the policy is taken out in the first place. If clients are going to derive optimum value from the product then advisers should start thinking in terms of multi-usage.
