Buyers of life insurance are being warned to think twice before signing up to superficially attractive direct or online offers that may fit poorly into a sensible financial strategy. Independent financial adviser Almary Green says tens of thousands of people buy ‘term assurance’ life cover direct from a provider each year without
taking the simple step of setting up the policy within a trust that can guard any future payout from tax.
“While having some life cover is better than none at all, it is most effective when set up in a trust arrangement and incorporated within an overall financial plan designed to deal with the unexpected,” said Fiona Sharp of Almary Green.
“This should encompass not just insurance but also documents such as wills and Lasting Powers of Attorney which, once in place, can help save a huge amount of work later at what might be a very distressing time.”
She said that life cover is a particular area where buyers, typically parents wanting to provide for children in the event of unexpected death, should be wary of what they are not being told.
“Insurers are keen to bombard us by email and post with offers but they do not mention the importance of setting up policies so that the payout goes to a trust,” she said. “Without the trust, the payout would be made directly into the deceased’s estate, taking time to sort out paperwork and also becoming potentially subject to Inheritance Tax.”
Fiona Sharp said people thinking of buying life insurance should make sure they have a written a will. “Those who die without a will can leave an administrative tangle that may take hours of work to unravel,” she said. “People living together who are not married or in a civil partnership have no automatic rights to the estate, and even spouse’s and civil partners can find they do not have the rights they expect.”
She urged people to take advantage of the service organised by the charity Will Aid this month, allowing people to have wills drawn up professionally in return for a charitable donation. She said that it was also worth talking to a solicitor about setting up a Lasting Powers of Attorney that, if someone loses their mental capacity, gives responsibility for finances and welfare to a trusted person.
“Nobody knows what is just around the corner,” she said. “Emotionally it may not be easy to confront these kind of ‘what if’ questions but they are worth asking and the answers do not have to be complex or expensive.
“The clients I see tend to be relieved they have taken action – they can move on with life knowing that they have put in place the right components to make life as easy as possible for their loved ones should the unexpected happen.”
Posted under Personal Finance News
This post is a Blogger on November 17, 2009
