You need to review your insurance programme regularly, because life happens. You also need to look at how and where you’re saving money – if you use a trust, be sure that it’s right for your needs.
Review Your Insurance Regularly
When should you sit down to review things? Here’s a nominally helpful, but certainly not exhaustive list:
- When your relationship status changes
- When you have kids
- When you have more kids
- When you take on someone else’s kids
- When you take on a new debt or pay a debt off
- When you change jobs
- When you get a significant promotion or pay rise
- When you receive a windfall, like an inheritance or a lottery win
When these events occur, make a point of sitting down and revisiting your insurance programme. Do you need to tweak it? Do you need to alter it based on that change in circumstance? Don’t just set up your insurance and never look at it again, because that’s a quick way to fail with this whole thing.
Use Trusts Wisely
Think of a trust as a box into which you put something, in this case an insurance policy, and on the box are clear instructions about who can benefit from the policy and when.
You give the box to some trusted people to look after. They are called your trustees, and they are responsible for carrying out your wishes as regards what’s inside that box. All life insurance should be written in trust, and if it isn’t, the proceeds of the insurance policy will be added to your estate.
Not only could this potentially cause you an issue with inheritance tax if the numbers are big enough, but for most of us the biggest issue will be the time taken to get the money from the policy into the hands of those who need it.
Think about it; if you die, all your bills still need to be met. If your estate is with the solicitors for six months or more before it can be distributed, then that might be too long, and would certainly cost those left behind a lot of grief and worry.
If the policy is held in trust, it is no longer yours, but is owned by the trust, and so once the insurer is satisfied that you’re dead, then the policy will pay out quickly. The trustees would open a bank account in the name of the trust, the life insurance policy would pay into the bank account and your trustees would send a cheque or electronic payment to your partner’s bank account.
If you’re leaving money for your kids and they’re still children, that money can’t be paid to them, because you can’t pay trust money to a minor, and so the money would be invested and looked after by the trustees until your kids grow up. It’s really important to choose your trustees wisely.
Having a trust introduces a layer of complication, but generally, the benefits outweigh the hassles. There is also an argument for holding a life insurance policy on a life-of-another basis.
That means that your partner or family member owns the policy on your life. If you die, the money pays out to them. There has to be insurable interest, so they have to be in a position where they would suffer financially due to your death, but this is a good arrangement. The problem, such as it is, is in the unlikely event of you dying together. A trust fixes this fairly easily.
Most life insurance companies, will provide trust forms, but as ever, there may be multiple options. This is an area for expert advice, I believe. The forms themselves are noted as drafts, so you’re meant to get them checked by a solicitor before signing them.