Government taxes & policies on life insurance plans

The tax situation with life insurance policies is a complex area and you should seek advice from an Independent Financial Adviser or accountant. Tax law is also subject to change. The information given below is only an outline of the position.

Term life insurance policies

Where these policies are used for personal as opposed to business use the sum insured is paid free of tax. This only applies to those policies which have no investment element. The premiums paid do not attract tax relief except on certain older policies.

If the policy is used for business purposes such as keyperson insurance then there may be a tax charge on the proceeds. If when the policy was set up the Inland Revenue agreed to grant tax relief on the premiums the proceeds could be subject to a charge for corporation tax.

Whole life insurance policies

In most cases these plans have an investment element and in the event of a claim or surrender there could be a tax charge depending on the size of the accumulated investment and individual circumstances. When used for business purposes there could also be a charge to corporation tax.

Some whole of life plans have no investment element and in these cases the proceeds are normally paid free of tax. Premiums on policies for personal use are not subject to tax relief except as stated above.

Endowment policies

If these are set up to run for at least 10 years the proceeds at maturity are paid free of tax. If the plan is surrendered before maturity there is no tax charge provided that the plan has been in force for at least 2/3 of the original term.

As with whole life insurance policies including life insurance investment bonds and life insurance savings plans the tax position will vary depending on the type of plan. Professional advice should be taken to clarify the position. .