Baby boomers are people born after World War II who just turned 60. Their needs for insurance are very different from those of a young family or a person who just got their first job.
A typical couple in their 60s will have raised their children, paid off their mortgage, and are either retired or close to it. More and more people in this age group spend part of the year abroad or are thinking about moving to a sunny place for good.
At this point in their lives, it might be a good idea to figure out what kind of insurance they need. The worrying problem of inheritance tax is almost certain to come up. Over the past few years, house prices have gone up a lot, and the family home that fit their needs a few years ago is probably worth close to or more than the inheritance tax limit. Even if they sell their big house and move into a smaller one, they may still have enough money to buy something like a vacation home.
In the 2007/8 tax year, inheritance tax is paid on taxable estates worth more than GBP300,000. This amount goes up every year. In 2006/7, it was GBP285,000, for example.
To figure out how much their estate is worth, they will need to add up the value of their home, savings, investments, life insurance policies, business interests, and anything else they have. When this amount is added up, any debts will need to be taken out. Most of the time, this includes any mortgages, loans, and other debts that are still owed. The inheritance tax will be based on the amount left over after subtracting the amount that is not subject to inheritance tax.
When the second partner died, inheritance tax would be due. There is no inheritance tax for people who are married.
To put it simply, if their estate, which is the value of their assets minus their debts, is around GBP400,000, the 2007/8 allowance of GBP300,000 would leave GBP100,000 that would be taxed at 40%. That gives their beneficiaries GBP60,000 and gives the tax man GBP40,000.
You might think this is a pretty big estate, but think about how much your home is worth now.
This couple might be happy to give away up to GBP40,000 of their hard-earned cash, but we don't think so.
At this point, the couple should probably talk to a professional, but a solution could be to get whole-of-life insurance. If their beneficiaries got an amount that would cover the estimated inheritance tax bill, they wouldn't have to worry when that time comes. The policy must be written "in trust," and the payout will not be counted as part of the estate because of this. By using this important clause, there should be no delay in paying out the policy to the people who are entitled to it.
Most policies that help with inheritance tax bills are linked to investments and can be reviewed. The plan will be looked at every five or even ten years. If the plan's investments haven't done as well as hoped, the premium could go up, and our couple needs to be aware of this.
An online broker can help our couple find the right product for them at the right price and give them advice about this important topic.
