Term assurance policies

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Term assurance policies

To provide for your sister should you die before retirement, you could take out a term assurance policy combined with Family Income Benefit. For about £1200 a year you could obtain cover of £120,000 plus an annual benefit of £13,000. To avoid capital transfer tax I would advise writing these policies under trust for her benefit.

Now the benefits for your sister we have discussed would be payable only on your death before retirement. If, as we expect, you are alve and well and start to draw your pension benefits then you will need some other means of providing for her. At that time, you will have the option of making your pension payable not just during your life but for a fixed number of years whether you live or not, and this is one way in which you could at that time provide some security for her. This is not something we can plan for exactly now, since by that time you will have probably sold your business, and could have a large amount of cash to invest. I presume that you will be leaving the bulk of your estate to your sister, and in view of what you have said about her husband it might be as well to consult your solicitor and frame your will in such a way that there is no likelihood of the money falling into his hands. Incidentally, as regards the death benefits for your sister, the income benefit provided is free of income tax.

If you want to provide something specifically for your niece, then I would suggest a child's endowment policy for this purpose. It is a policy on your own life which is passed on to the child at some specified age or date; the phrase "at the age of 2N or on the date of her marriage if earlier" might be appropriate here. At that time, she can take the proceeds in cash or use them to reduce the premiums on a life insurance policy for herself, or, since she is likely to be marrying, we can also include the option for the policy to be transferred on to the life of her husband, though she would still be entitled to the proceeds.

Finally, I would point out that since your tax assessment for last year has not been completed you can make a contribution to your pension plan in respect of last year, and obtain a reduction in your tax bill.

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The background. George Elmer runs his own wholesale greengrocery business. He is unmarried and has no intention of marrying. His younger sister, who is separated from her husband, and her daughter, live with him and his sister helps him with the business website-keeping. George is now 46 and starting to think about the future and retirement. He is doing well with his business and in the past two years the amount of tax he has had to pay has risen sharply. He has a couple of life insurance policies he took out many years ago, but thinks he should now be starting a personal pension plan. He would also... see: Practical Case Studies - Case Study 3

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