Royal London has launched a joint life second death life cover option to help clients with their estate planning and mitigate inheritance tax (IHT) changes announced in the Autumn Budget.
The option, available on its Personal Menu Plan, aims to offer a cost-effective alternative to whole of life cover for those with potential IHT liabilities.
Speaking to Health & Protection ahead of launch, the mutual said the offering could potentially help customers with their gifting strategy by age 90 and also with pension inheritance planning.
Joint life second death provides a pay out on the second person covered if they die or are diagnosed with a terminal illness, during the term of the cover up to age 90.
It is an option already provided within Royal London’s whole of life plan and is now available on its term life cover.
Cost-effective solution for estate planning
Joint life second death aims to give advisers more options for IHT planning, allowing them to provide their clients more choice.
Royal London pointed out that it is an option that could be considered as a more cost-effective alternative to whole of life insurance, appealing to the growing number of clients who need to manage their IHT liabilities.
This includes affluent and high-net-worth individuals over 40 years of age who generally possess substantial assets but have limited liquidity.
Protection on gifted assets
And the cover also features a gifting option, enabling assets given to the family during the individual’s lifetime to be protected.
Individuals can make lifetime gifts, carving out a portion of the sum assured with a separate ‘gift inter vivos’ policy to insure against the cost of them dying within seven years of the gift, after which the asset passes tax-free. The mutual added that there is also no need for medical re-underwriting when using the gifting option.
Growing number of estates caught by IHT
Elaborating on the underlying trends informing the launch of the offering the mutual said it comes against a background of rising house prices and frozen tax thresholds, alongside the decision to include pensions and pension death-in-service benefits within estates for IHT from April 2027, which will mean more estates will fall into the taxable bracket for IHT, unless action is taken.
The Office for Budget Responsibility estimated that the proportion of deaths subject to IHT is likely to increase to nearly one in 10 by the end of the decade.
And Royal London added it believes these factors are likely to push up the demand for IHT planning.
IHT bills
Indeed Jennifer Gilchrist, protection expert at Royal London, told Health & Protection that people now face IHT bills, with more and more people potentially affected.
“The Budget has obviously drawn that to everyone’s attention with more people potentially impacted,” Gilchrist said.
“It is about providing peace of mind so the family can effectively pass on their assets and wealth allowing that policy to effectively pay for the tax bill.
“In the market there’s whole of life which is a great solution for IHT planning, but you find that people are very asset rich and don’t have the same liquidity to be able to afford the policy so using a term product makes it more cost effective.
“But it’s also very different from whole of life in that if you survive beyond age 90 then the cover stops because it’s term, but it is a different vehicle to support your IHT bill and it’s more that the adviser will be key to ensuring any recommendation for this type of product is understood by the customer about what that’s going to deliver.”
Gifting strategies
Gilchrist added that a lot of the time these products are set up so the adviser is trying to help the customer plan out their gifting strategy.
“Using a term product will have different gifting strategy to a whole of life product,” she continued.
“A gifting strategy when you’re using term, you’re almost wanting to get your IHT bill down to under the threshold by the age of 90 so that you don’t have that bill left to the end.
“The proposition is different. It’s not whole of life, but it does give that choice if the family circumstances are that they don’t have the liquidity to afford whole of life, it’s very much giving them an alternative option to not having anything.”
Cost effective solution
Fiona Wynn, head of protection proposition at Royal London (pictured), maintained the solution would be “significantly more cost effective” for much of the mutual’s core heartland customers.
“That’s the point,” Wynn noted. “We do have a focus of becoming more of a go-to in the high net worth space, but we’re never going to forget our heartland and that is really important to us.
“That’s where this product is really trying to help us bridge that gap.”
Growing the market
And with a ‘go live’ date of 5 December, Wynn added that the Budget could not have done the mutual more of a favour as this offering has been in the works for some time.
“What we were really keen to do with this product launch is have an IHT planning solution that is more affordable for more people,” Wynn said.
“When we do the price comparison against joint life second death whole of life it’s really pleasing to see that.
“We know with the contraction that there has been within the market, players in this space have been dwindling for new business so we really saw this an opportunity to come in and grow this part of the market rather than pick up other’s share.
“It really is can we come in and help this part of the market grow?
“We’re really pleased that we’re bringing this to market.
“We’ve chosen to do it this side of Christmas as opposed to the other because we really felt we want to get it out.
“But also with the Budget, it really felt there was no reason to delay.”
Inheriting Aegon capabilities
Though Wynn added the mutual has also benefitted from inheriting some of Aegon’s capabilities inhouse following its purchase of its individual protection book in April 2023.
“That certainly brought some insight to us that this is a part of the market that we could serve better and we have a right to play in, that we have the capability and the expertise to play in,” Wynn continued.
“That really helped drive decision making to say, ‘let’s see what we can do here.'”