Life-Of-Another Policies

In addition to writing your life insurance policy 'in trust', there is another way of passing on a life insurance pay-out to your loved ones without their having to pay tax. A Life-of-Another policy allows your spouse, civil partner or partner to take out life insurance which will pay out in the event of your death. When you die, they will receive a pay-out directly, negating the need for you to purchase a policy and write it 'in trust'.

However, Life-of-Another policies cannot be taken out for just anybody: an insurer must have confirmation that the policyholder is financially dependent on the income of the other person, and therefore will not be able to cope financially without a pay-out on their death. Legal partners (spouses or civil partners) are considered to have such a 'life interest' in you and can take out a Life-Of-Another policy on your life.

A disadvantage of Life-Of-Another policies is that your partner or spouse will be able to claim a pay-out in the event of your death, even if you have since broken up or divorced. If you have another partner or children who are dependent on you, you may need to make alternative arrangements to ensure that they will be taken care of; your ex-partner may not be willing to share the sum assured (the money paid to the Life-Of-Another policy holder in the event of your death) with your other survivors.