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Life insurance Trust survey 2023 – Nearly 4 in 5 policies not in Trust

Nearly 80% of single life insurance policies were not put in Trust in 2022 according to a recent survey by Swiss Re.

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 3 October 2023

5 min read

Life insurance Trust survey 2023 – 4 in 5 policies not in Trust

A recent survey carried out by reassurance giant Swiss Re. has found that nearly 80% of single life insurance policies were not put in Trust in 2022. The majority of consumers probably don’t understand what a life insurance trust is and it may never have been recommended to them.

To put this into context, if your family was to claim on your life insurance policy with no Trust in place, they might have to pay 40% tax on the payout as well as potential delays that could be years. A trust is a simple legal document that is provided by most life insurance companies and is usually absolutely free, as long as you’re aware of it.

We’ve recently read a report provided by Swiss Re. which is one of the biggest global insurance and reinsurance provider, about some alarming shortfalls of life insurance Trusts in the UK. Swiss Re. is responsible for the majority of personal lines and business lines insurance underwriting around the world.

The report from Swiss Re. Has suggested that nearly 80% of single life term insurance policies purchased in 2022 in the UK were not written in trust. This might not seem like a major issue to most consumers, however the Financial Conduct Authority (FCA) has previously strongly recommended that this be addressed by a life insurance brokers and providers.

Quick summary – Life insurance trust report findings 2023

Putting your life insurance into trust is essentially free and can save you as much as 40% an inheritance tax as well as avoid months or even years of delays from probate. If you buy life insurance directly through a life insurance provider or via a life insurance broker then they should be recommending that you put your policy into trust.

  • Life insurance trusts are usually free and can be completed online when you take out a new life insurance policy or throughout the term of an existing policy
  • A trust is a legal document which must be completed properly and signed to ensure that it is binding
  • There are several different types of life insurance trusts (including: discretionary trust, absolute trust and business trust)
  • Most life insurance trusts will require you to name a beneficiary (to receive pay out) and a trustee (to carry out the trust)
  • It is worth having a life insurance trust in place even if you have a Will or lasting power of attorney

More on this topic:

As we’ve mentioned above Swiss Re. is a global superpower when it comes to anything to do with personal lines insurance and commercial insurance. They are responsible for a significant proportion of reinsurance terms for all types of insurance around the world, and so are best placed to provide this kind of data.

Report was also written in conjunction with Insuring Change, which is a consultancy service specialising in the UK protection industry.

Survey findings:

  • 78.9% of single life insurance term policies were not written in trust in 2022
  • Only 17% of all new term life insurance policies were written in trust last year
  • Non-advised life insurance (e.g. Direct sales or price comparison websites) sales fell by 122,821 policies in 2022 from the previous year
  • 962,000 term life insurance policies were not written in trust in 2022
  • Mortgage life insurance policies (decreasing term insurance) saw the biggest increase in policies being placed in trust since 2019

When you take out a new life insurance policy you will automatically have the option to place that policy in trust for free with most insurance providers. Whether or not you do this is usually down to the quality of the advice that you receive and the level of expertise of your advisor.

A trust helps to ensure your wishes are carried out in the event of your death, specifically who receives the benefit from your policy. This money can then be used for expenses like funeral costs or outstanding debts (e.g. mortgage balance).

A life insurance trust will usually take around 10 to 20 minutes to complete as well as then requiring signatures from you, your trustees and witnesses. This is potentially the biggest barrier as most people will avoid the paperwork and try to keep things simple.

Can I put my existing life insurance policy in trust?

If you already have a life insurance policy in place, even one that you bought several years ago, you can still place this policy in trust with most insurers. You should speak to your life insurance provider or company to find out how to complete your life insurance trust documents.

How does a life insurance trust work?

A life insurance trust is a very simple legal document that is provided by the life insurance company to its policy holders. A trust is a legal arrangement that specifies who receives your life insurance benefit (lump sum payout) in the event of your death.

Most modern life insurance trust documents can be completed online with an E-signature, or some may require a wet signature. There are various different types of trust and the life insurance provider, broker or financial adviser will help explain which will work best for you. You can set up a trust for single or joint life insurance policies (popular with married couples) and even business life insurance policies.

Once your life insurance policy is written in trust, this will be recorded and stored by your life insurance provider. In the event of claim your policy should flag up automatically that there is a trust document attached to it which is where your wishes should be taken from.

What are the benefits of a life insurance trust?

Life insurance trusts have evolved significantly over the past several years so that they are now more flexible and far more user-friendly. They provide clear instruction in the event of claim and also help to avoid potential inheritance tax liability, as well as delays in payment.

Top 5 Life insurance trust benefits:

  1. Helps to avoid as much as 40% inheritance tax liability (as your life insurance won’t form part of your estate)
  2. Benefit payments can be made outside of probate restrictions and limitations
  3. Payouts will be made in weeks and not months or years
  4. Your wishes will be followed to the letter
  5. Life insurance trusts can be flexible and even rewritten when done properly

How to get life insurance trust advice

Unfortunately, the vast majority of life insurance brokers and distributors in the UK are not taking their responsibilities seriously. These numbers show that most life insurance companies are not recommending trusts anywhere near as much as they should do.

If you need proper advice about life insurance trusts then you can speak to an expert by contacting iam|INSURED on 0800 009 6559 or click here.

More life insurance news and guides

Here’s more of the latest news about life insurance in the UK – plus some handy MPO guides that you might find useful.

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