Aegon’s new Whole of Life plan is aimed at (generally) older people who have an Inheritance Tax liability on their death and want life insurance to cover that. One issue with such policies is that, whilst they should probably be written in trust, not all of them are. To remedy that, Aegon has made its discretionary trust part of the application process, even if the application is online.
The customer signs two copies of the trust form of authority and makes an oral declaration of trust to their financial adviser (in person or by phone). It is important for this declaration to be made DURING the online application process. Once the plan is accepted, Aegon sends the client a confirmation pack to confirm the trust details and the customer signs and returns a confirmation form. Alternatively, a more traditional paper application route is also available.
Once set up, the customer becomes the sole trustee, so an additional trustee or trustees should be appointed as soon as possible afterwards.
The plan itself is a whole of life policy, available on one or two lives (payable on first or second death). Age range at outset is 18 to 84 and applicants must be UK resident. Free cover is offered during the underwriting process and this is also covered by the trust. The sum insured is also payable on terminal illness.
The sum insured can be level or increase annually in line with the RPI (Retail Prices Index) up to a generous maximum of 10% a year. Waiver of premium is available (with a 26 week deferred period), and a choice of three incapacity definitions (own occupation, suited occupation and activities of daily work) and this benefit lasts to age 67.
Guaranteed insurability is available on birth/adoption; marriage/civil partnership; change of home/home improvement; career change/promotion, or divorce. In some cases if a couple divorce each can continue cover with no new medical underwriting, but this option is subject to their health when they start the policy. Business guaranteed insurability options are also available. Part of the sum insured can be also converted into a gift inter vivos policy (decreasing term insurance).
What They Say
Protection director Dougy Grant said: “We’re clear on our target market – slightly older customers whose dependents will have an IHT liability on their death and people with a property worth more than the nil rate band. As it’s designed for that market, we’ve maximised the likelihood of it being written in trust.”
What We Say
"The Government’s IHT take is rising so, logically, more people should be looking at taking out whole of life insurance to cover the likely IHT bill when they die. From an intermediary’s viewpoint, two major issues on such policies are underwriting and trusts. Using an online application process can help with the former but the time and paperwork can mitigate against the latter. Partly as a result, far too many protection policies are not written in trust.
"Aegon has neatly sidestepped the issue by developing a trust that makes the process as simple as possible and bases it around oral instructions rather than written ones. Care needs to be taken to follow the rules exactly, but the concept looks likely to achieve the desired goal of all or most policies being written in trust.
"One interesting aside is that if the trustees do not appoint any beneficiary, 125 years after the trust was set up the trust ends and any monies in the fund go to a charity chosen by the trustees, with a default of Cancer Research UK. It’s a nice touch in the very unlikely event that the trustees fail to appoint any beneficiaries. This (and more) is set out in a useful nine page trust guide."