A Section 72 insurance policy is basically a guaranteed, whole of life insurance policy, but written with very specific instructions so that the Revenue Commissioners know not to include the proceeds of the policy as part of the life assured’s estate for inheritance tax purposes.
A guaranteed whole of life insurance policy is GUARANTEED to pay out the benefit no matter what age the person covered dies at. This means that it can be quite expensive.
Sometimes people ‘win’ with this arrangement, sometimes the insurance company ‘wins’. So, how can you put yourself in the position of winning?
A win is when you get more from the policy than the amount that you have paid in as premiums over the years of holding the policy. Below is a recent example of a quote that we provided for a client, and this one is clearly a win, in that the person would only lose on their Section 72 policy if they die after the age of 125!
Male / Non-smoker / Aged 55 & Female / Non-smoker / Age 53. Covered by a joint life, second death policy for €180k inheritance tax cover = €214.75 per month. This equates to €2,577 per annum, which means it would take them almost 70 years to reach the benefit amount of €180,000. In reality, as the premiums stop at age 100 (or on the second death, whichever happens first), they will pay a maximum of €115,965 in premiums up to age 100 for a guaranteed pay out of €180,000 from their Section 72 policy.
In this instance, and many others, the premiums are worth it.
The biggest issue with Section 72 policies or the issue that causes the most reluctance to start a Section 72 policy, is the commitment of the premiums at a stage of life when new income may be minimal. Bear in mind that in order for the policy to pay out, premiums must be maintained. So, at age 80, you will still need to be able to pay your premium every month.
As with everything in life, a balanced approach is key. Do you need to cover the entire inheritance tax bill? If your estate includes cash, could this not be used to cover part of the inheritance tax bill? As your children will ultimately benefit from the policy, should they pay the premiums, or at least contribute towards their cost?
Contact us to have a chat about how best to structure your Section 72 insurance policy in a balanced and reasonable way, that will ensure you are not over-committing to something that you may not be able to maintain in the long term.
If you have any specific questions, we are always available to help you out.
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