Critical Illness Cover and Trusts
Posted on February 5th, 2011 in All Posts, Critical Illness Cover. If a life insurance policy is taken out on a joint life basis then the need for a trust is far smaller, than that of a single life insurance policy. If a claim on joint life policy is made then the proceeds are given to the surviving policyholder. However with a single life insurance policy the proceeds would instead go to the deceased estate. If they have a will then this may take several months. Unfortunately most people do not have wills and thus in a case where no will is present the funds may be 6 – 12 months before they go to the correct individual.With single life insurance policies to prevent the funds going to the estate potentially getting taxed inheritance tax on the sum and taking a long time to reach the beneficiary a trust is set up. With life insurance only a straight forward trust is put in place this is normally done by a financial adviser. However with a Critical Illness Policy a different type of trust is required. This is because if the policy holder dies the funds will be required to go to the beneficiary however if the policyholder gets a critical illness then the sum assured will be required to go to the policyholder as they will still be alive and will require the sum assured.
A specific kind of trust is needed and this is called either a flexible trust or sometimes known as a discretionary split trust. To ensure the right trust is used it is best to use a financial adviser. A trust for critical illness should ensure the funds go to the beneficiaries in death but are given to the policyholder for a critical illness claim.
There are no benefits to writing a standalone Critical Illness policy in trust as the benefits are payable to the policyholder.
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