Products and underwriting

Understand how the key wealth protection products can be used for covering Inheritance Tax (IHT) liabilities, and the flexible underwriting options available to meet client needs.

There are three main products which are used for wealth protection:

A level term policy can be written to a set age (maximum 90 next birthday) or a fixed number of years (maximum 50) as required. It is available on a single life (SL), joint life first death (JLFD) or joint life second death basis (JLSD).

It is a simple yet versatile product - in addition to covering a long-term liability on the residual estate it can also be used to cover a very short-term liability such as the 2-year period on a Business Relief (BR) qualifying investment, and to construct a Gift Inter Vivos (GIV) policy.

One of the benefits of choosing Zurich is that we offer Convertible term, and it’s actually an option available with our level term product rather than a separate product, that allows it to be converted to WOL by a certain age with no further underwriting:

The reason it isn’t available on JLSD basis is because the cost of the option to allow conversion to WOL would be so high that it would barely be cheaper than WOL and therefore it wouldn’t provide good value, therefore the client may as well just take out WOL.

It provides future guaranteed insurability for those who don’t need WOL now but might in future; for example high earners who need mortgage or family cover now, but once the mortgage is paid off and the children grown up will likely need WOL to cover an IHT liability.

The WOL premium will be based on the prevailing rates and current age at the time of conversion, and the client must be UK resident at the time of conversion. The option can be removed (but not re-added) at a later date if desired.

A WOL policy is guaranteed to pay out on a valid claim at whatever age death occurs, and for that reason is the most expensive product, but is also the most suitable when an IHT liability is expected to be permanent.

The cost of WOL can sometimes put clients off, if they don’t see the value in it. Let’s consider the value of a WOL policy in investment terms, by looking at the ‘return’ it typically provides; in other words the amount paid out compared to the premiums paid in.

The longer a client lives the more premiums they will pay and the lower the return will be, but typically they would have to live to an unrealistic age before they would have paid more in premiums than will be paid out to their beneficiaries.

For example, on 1st April 2026, for an annual premium of £6,000 a 70 year old non-smoker accepted at standard rates would have secured a sum assured of £193,992. If they died aged 87 the return would be 90.19%:

They would have to live until age 102 before the return would be zero, i.e. when the premiums paid exceeded the sum assured.

That same £6,000 per annum saved into an investment achieving 4% annual compound growth would only have returned 44.97% in that same timeframe. And if written into trust the proceeds from a WOL policy will also be free of IHT, unlike most investments.

You can use our WOL calculator to demonstrate the value of WOL by modelling the return it will provide at any given assumed age of death.

• Whole of Life calculator (84.7 KB/XLSX)

Currently most unused pension funds can be inherited free of IHT and therefore conventional wisdom for individuals who don’t need to take an income from their pension has been to leave them alone for estate planning purposes.

However, from April 2027 this will no longer be the case. As explained earlier, the Personal Representatives (PRs) may be able to direct the pension scheme administrators (PSAs) to withhold 50% of a pension for up to 15 months to pay the IHT arising directly within it. But consider the potential issues with that:

• It relies on the PSAs having the appropriate processes in place in time to facilitate payment of the IHT, and being able to do so within 6 months
• The pension beneficiary/ies will be deprived of 50% of the pension benefits that they would otherwise have received
• How liquid are the assets in the pension, can they be sold within 6 months? For example, many Self-Invested Personal Pensions (SIPPs) hold commercial property which can take years to sell

Withheld pension benefits can only be used to pay the IHT arising within itself, not that arising from the rest of the estate, and if the IHT isn’t paid within 6 months interest will continue to roll-up. So is there a better way to use that surplus pension?

Instead a client could take out a WOL policy, funded by income taken from the pension for example an annuity or regular drawdowns), and in doing so not only cover their current IHT liability, but also reduce it by the value of premiums paid (which should be exempt transfers as NEOI) leaving the excess as a tax-efficient legacy gift for their family.

With respect to protection, the Rysaffe principle involves splitting a WOL policy into multiple policies and writing them into separate discretionary trusts created on different days, in order to benefit from multiple NRBs and minimise the risk of periodic and exit charges.

This topic is covered in more detail in our technical guide.

• Technical guide (150.7 KB/PDF)

You can use our Rysaffe planning calculator to determine the optimal number of policies to split a WOL policy into.

• Rysaffe planning calculator (81.4 KB/XLSX)

Delegated underwriting

A popular option with wealth advisers is our automated delegated underwriting facility, which allows a client to complete the health and lifestyle questions themselves, giving them time to consider their responses and check details of their medical history.

• Delegated underwriting guide (1.5 MB/PDF)

As explained earlier, LTR who permanently leave the UK will carry a ‘tail’ of IHT liability, so they will need a level term policy to match the length of that tail. We can only offer cover to UK residents, so it is essential they apply before they leave the UK.

Provided the client meets our definition of UK resident at the time they take out the policy, we can consider applicants who intend to move permanently abroad to countries within the European Economic Area (EEA), plus Switzerland, North America, Australia and New Zealand.

Further detail regarding our residency definition and requirements:

• Cross-border business policy (383.0 KB/PDF)

Where JLSD cover is required, if one life is declined, is considered to be uninsurable, or presents a significantly increased risk that would result in a premium higher than that for the healthier life on a single life basis, we will offer JLSD priced solely on the healthier life.

This ensures your clients receive a fair price, and the policy will still pay out on the second death, ensuring the proceeds are paid at the right time, for example when the IHT liability arises.

Our system will automatically adjust the premium in line with the single life rate; there is no manual intervention needed so you can submit the application as normal. If you have a pre-sale reference then you can give us this when you submit the application.

Where term cover is required for a joint IHT liability then usually JLSD would be the appropriate basis. However, JLSD term is written to the age of the older life, and therefore where there is a large age gap between the two lives this may not be desirable.

For example, a JLSD term policy written to age 90 for lives aged 60 and 74 would have a term of 16 years, and therefore the younger life would only be covered to age 76.

Should it be preferable, where there is an age gap of at least 10 years we can consider allowing two single life policies, each for 50% of the joint IHT liability, on the proviso that they are written into suitable trusts that ensure the spouse or civil partner is excluded as a potential beneficiary, and the claim proceeds will be held in the trust until the second life dies.

The clients would need to be aware that if the policies were held in a discretionary trust, then following payment of the claim proceeds upon the first death, there may be a periodic charge payable if the survivor lives to a 10-year anniversary of the trust. Additionally, an exit charge will apply when the proceeds are eventually distributed.

Further information about underwriting considerations for high value cases is available at:

• High-net-worth services