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£230 billion of life insurance payments at risk of going unclaimed – here’s what you need to do

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Life insurance and protection is one of the cornerstones of sound financial planning. Making sure your loved ones can maintain their lifestyle if you’re no longer around should be one of your key priorities.

The last couple of years have shown us that the unexpected can happen at any time, so it’s important to be prepared.

While you may already have protection in place, do your loved ones know about it?

New research has found that billions of pounds of life insurance is at risk of going unclaimed, simply because policyholders haven’t let anyone know that it’s in place. Read on to find out more, and for two easy ways you can ensure your family know about the cover you have.

Nearly 1 in 5 Brits fail to tell their loved ones about their life insurance

New research from a leading price comparison site has revealed that UK life insurance policies worth an estimated £230 billion are at risk of going unclaimed.

Cover report that it’s because one-fifth (18%) of Brits have not told family members that they have a life insurance policy in place.

In addition, just under 15% of policyholders have not provided family members or beneficiaries with the necessary information required to make a claim on the policy. The research found that this equates to 2.9 million life insurance policies at risk, valued at a total of £230 billion.

If you have any protection policies in place, it’s vital to ensure that you let your loved ones know that they exist, and where they can find all the necessary policy documents. Here are two easy ways you can let your loved ones know about the cover you have.

2 easy ways to make sure your family know about your cover

If you want to ensure that your loved ones know about your life insurance, and how to claim, there are two simple ways to let them know.

  1. Include it in your will

The research reported in Cover suggested that less than a third of people (29%) had detailed their life insurance policy in their will.

When writing your will, it’s easy to mention that you have life insurance in place – and you could specify who you would like to benefit from the payout. You can also do this using a trust – read more about this below.

  1. Create an In Case of Emergency (ICE) document

More than 1 in 3 people (35%) with life insurance say that their families don’t know how to find their life insurance policy documents.

So, one way to ensure that your loved ones know about your cover is to create an ICE document. An ICE document is designed to contain all the important information your friends and family need to know if something happens to you. Typically, it will include details of:

  • Your solicitor, accountant, GP, and financial planner
  • Any life insurance and protection products and, crucially, where to find the policy documents
  • Any savings accounts you have, including National Savings & Investments and Premium Bonds
  • Any bank accounts you have
  • Any credit cards, loans, or other debts you have
  • Any shares or investments you hold
  • Any pensions you are in receipt of, or will receive in the future
  • Household suppliers, such as your gas, electricity, water, and mobile phone providers.

Your ICE document can also include things like requests for your funeral, contact details of friends and family, and details of where important documents such as your will and Lasting Power of Attorney are stored.

Putting life insurance in trust can help you to ensure it goes to the right person

A trust is a legal arrangement that lets you “gift” the proceeds of a life insurance policy to someone else. You will usually do this by creating a legal document called a “trust deed”.

For example, you might want to make sure your children will be financially supported in the event of something happening to you. A trust document allows you to set out rules and guidance so that the trustees of your life insurance policy – the people you nominate to look after it – must act in the interests of your children.

There are three main advantages to writing your life insurance policy in trust.

  1. Proceeds are paid in accordance with your wishes

Writing your life insurance policy in trust ensures that the policy proceeds are paid to the person or people you have requested, in accordance with your expressed wishes.

You can also control how the policy benefits are paid. For example, you might not want your children to receive a big lump sum of money in one go – especially if they were still young. Using a trust means the trustees could pay out the benefits of your policy over a period of several years.

  1. It ensures the beneficiaries receive the money quickly

Placing your life insurance policy in trust also means that the payment of the policy proceeds can be made quickly to the trustees and then on to the beneficiaries. Importantly, this can be done separately to probate.

  1. It can help you avoid an additional Inheritance Tax (IHT) bill

Once you’ve put your life insurance policy in trust, you have essentially gifted these to someone else. That means the proceeds won’t normally be included in your estate for Inheritance Tax purposes and will usually pass tax-free to whoever you choose.

Read a full guide to trusts on our website.

Get in touch

If you want to ensure your loved ones are provided for when you’re no longer around, or that they receive the full benefit of any cover you have in place, please get in touch. Please email hello@sovereign-ifa.co.uk or call 01454 416 653.

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