Skip to main content

Why You Should Put Your Life Insurance Policy In Trust

LifeSearch author Katie Crook-Davies
3 min read

by Katie Crook-Davies, Protection Writer

See author bio

Katie works with insurers and distributors to make protection propositions more accessible, pricing more transparent and marketing messages more simple.See author bio

Guide last reviewed 4 Jan 2024

If you’re considering buying life insurance, you need to think about the small print! Roughly 35% of the adult population[1] of the UK have a life insurance policy, but not all of these people put their life insurance policy in trust.

Putting your life insurance in trust is not as mysterious and complicated as rich widows on TV make it sound. It’ll help you avoid inheritance tax on your life insurance pay out, and means your loved ones can avoid probate, which ensures that they receive the money much faster. The fact is, your loved ones are far more likely to feel the real benefits of your life insurance policy if it’s placed in trust when you buy it.

What is Inheritance tax?

Life insurance usually takes the form of a tax free lump sum, but if your estate is valued to be large enough upon your death, your life insurance could be subjected to a huge inheritance tax bill instead of ending up in the hands of your loved ones in full.

Your estate is the full sum of every single thing you own, including stocks and shares, land, property, and any entitlements to any assets. The threshold for inheritance tax[2] is £325,000 if you are single or divorced, or £650,000 if you are married or widowed. If your estate is found to be valued under these amounts then the lump sum from your life insurance will be passed on to your designated beneficiaries with no tax. However, if your estate is valued above the threshold that applies to you, then your estate (including your life insurance pay out) will be subject to a 40% tax bill.

The vast majority of life insurance policy holders do not have their insurance in trust, despite the benefits. Whilst it may not really seem necessary if your estate is valued below the threshold when you buy your insurance, it is a decent piece of forward planning that could save your loved ones thousands of pounds. Depending on your circumstances, taking your life insurance out of the equation can also stop the total value of your estate moving above the threshold for inheritance tax.

Writing your life insurance in trust means that even if your estate is subject to inheritance tax, you can leave behind some money that is just for your loved ones.

How does probate work?

Probate is a legal term referring to an executor’s authority over dealing with your assets, property and finances in the event of your death. Even when a will has been written, probate can take a huge amount of time (for an average estate it can still take about a year), and when no will has been written the process can be dragged out for even longer. Leaving your life insurance in trust bypasses this process.

Probate is quite a complex process, and probably the last thing you want your loved ones to have to deal with after your death. Leaving your life insurance in trust means that your insurance provider only requires a death certificate before paying out. The trust gives your loved ones a sense of security, knowing that they automatically have money available to cover the costs of a funeral, the mortgage and even any remaining debts.




Compare & buy life cover quotes online - then put your policy into trust for free

We encourage all of our customers to place policies into trust wherever applicable. If you buy a policy that can be placed into trust we're here to simplify the steps to do it.

Get quotes & buy online
LifeSearch author Katie Crook-Davies
Katie Crook-Davies Protection Writer
Katie is an independent insurance consultant who is passionate about protection and wants to share that passion with others through engaging marketing content. She hopes that one day people will get as excited about protecting themselves and their loved ones, as she does!
See all articles by Katie Crook-Davies
article thumbnail image Tax & Finances

Life insurance trusts - they make sense

We think trusts are pretty cool! Find out our top three reasons why in this guide.

By Katie Crook-Davies, Protection Writer

6 min read
article thumbnail image Tax & Finances

Inheritance Tax and Life Insurance

What’s the deal with Inheritance Tax?

By John Rogers, Marketing Executive

2 min read
article thumbnail image Tax & Finances

How to set up a trust for life insurance

Writing your life insurance into trust can help protect your pennies from the tax man, and more. Let us make it easy.

By John Rogers, Marketing Executive

3 min read

LifeSearch Limited is an Appointed Representative of LifeSearch Partners Limited, who are authorised and regulated by the Financial Conduct Authority. Calls may be monitored/recorded.