Life insurance is a crucial part of financial planning, but many people don't realise how it interacts with their Will and estate planning. Getting this right can save your family thousands of pounds and months of delay.
By default, a life insurance payout forms part of your estate. This means it could be subject to Inheritance Tax at 40% if your estate exceeds the nil-rate band. For a £200,000 policy, that could mean £80,000 going to HMRC instead of your family.
The solution is surprisingly simple: writing your life insurance policy in Trust. This means the payout goes directly to your chosen beneficiaries without passing through your estate. It's not subject to IHT, and your family receives the money faster — often within weeks rather than months.
In 2026, the average life insurance payout in the UK is approximately £85,000. For many families, this is a significant sum that could be the difference between keeping or losing the family home.
It's also important to keep your policy nominations up to date. If you've divorced, remarried, or had more children since taking out your policy, the existing nominations may no longer reflect your wishes.
Your Will and your life insurance should work together as part of a coordinated estate plan. At Castle Family Legal, we review your entire financial situation to ensure nothing falls through the cracks.
Contact us today to discuss how to optimise your life insurance arrangements alongside your Will.
