For Highclere's Alan Lakey, protection insurance – be it for a specified term or for the whole of a person’s life – makes the payment of inheritance tax possible, or rather “the ability to pay off debts or payments to others with a call on the estate”.
He adds: “Not everybody needs an inheritance and in these instances it can be passed on to children or grandchildren. This can also be achieved by altering the will using a deed of variation.”
He said most people leave their estate to their partner.
“No IHT is payable in this instance assuming marriage or a civil partnership, however on the death of the second partner the spectre of IHT comes looming.”
Zurich's Peter Hamilton acknowledges the apparent taboo around death and the relative lack of financial planning in this area as a result, although the pandemic has made this conversation easier for some.
He says: “Typically, people don’t like to think or talk about their own mortality, but the pandemic will have made some of those conversations just a little bit easier. We should be encouraging discussions about wills, lasting powers of attorney and estate-resultant IHT planning.
“There are different ways life insurance can help with protecting an estate: a whole-life-plan can be used to meet the tax whenever due; shorter-term plans can be used to cover large gifts within the potentially exempt transfer rules; and some will look at convertible plans that provide cheaper cover while allowing the customer to implement a gifting strategy that will reduce the potential liability over time.”
Hamilton adds that some people will use life insurance to balance out gifts.
“If one child is living in a house owned by the parent, a life policy could be used to provide an equivalent bequest without forcing the sale of the house on death.”
Lakey says the younger generations “do not realise” the importance of planning and “cannot see” the potential problem of their wealth increasing.
He explains: “Therefore, most conversations happen when they are older and maybe no longer in the best of health. The cost can then become an issue.
“Clearly, the earlier such a conversation takes place the better. Projecting forward using asset growth assumptions and introducing potential inheritances is a good way to introduce the concept of estate planning to younger clients. Highlighting the potential tax loss frequently excites people into a planning discussion.”
He adds that with older clients it is a good idea to engage their children in this type of discussion, “since it is the beneficiaries who actually suffer the financial loss”.
Hamilton says: “Talking about death is something few find easy, but we should do so more, as individuals, as advisers, as insurers, and as an industry."
He cites a survey by the Dying Matters campaign that shows that more than 70 per cent of us are “uncomfortable talking about death” and that less than a third of us “have spoken to family members about end-of-life wishes”.
He adds: “We use the euphemistic ‘should the worst happen' in much of our literature, maybe we need to be more robust with the language we use. Insurers and advisers more than most should be able to help people to talk about dying, and the impact of illness more generally.