Death in service insurance is a type of life insurance that is offered by some employers as an employee benefit. Also known as group life assurance, death in service insurance pays out a tax-free sum of money to an employee’s chosen beneficiaries if he or she passes away while employed by the company. It can play an important role in reducing your family’s Inheritance Tax (IHT) bill.
Many are understandably reluctant to consider what should happen in the event of their passing. However, by planning your death in service cover in the most strategic way possible, you can avoid unnecessary exposure to IHT and ensure your loved ones are well looked after.
A strategic approach to death in service cover
Many individuals choose to designate their spouse or partner as the beneficiary of their death in service benefit. While often seen as a way to support your significant other during their period of grieving, your death in service benefit would be paid out to your spouse in one tax-free lump sum. Should your spouse then pass away, the funds would then be exposed to IHT at a rate of 40%.
By opting instead to name your child or children as the recipient of your death in service benefit, that payment would go directly to them without incurring tax and without raising the value of your spouse’s taxable assets.
The key thing to understand here is that ‘the right thing to do’ is likely to change over time. It may well be right to nominate this benefit to your partner when you start out in your career, but it is important to keep that nomination under review as your career progresses and as your family and your financial circumstances change. Regardless of age, marital status, or parental status, it is never too early to consider the most strategic way of structuring your death in service benefit so that it does not incur IHT on your death, or in the estate of your chosen beneficiaries in the event they become payable.
How TWM can help you
By engaging in estate planning early in life, you can ensure that your wishes are carried out and that your loved ones are financially secure should the worst happen, for your peace of mind.
There is no need for your estate to pay more IHT than necessary. At TWM, you will benefit from the expertise of our dedicated solicitors who can assist you in exploring your options to meet your individual needs.
To discuss your requirements, please contact our specialist Private Client team today for an initial no-obligation consultation.