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Royal London launch an alternative to trusts

Royal London launch an alternative to trusts

Putting a life policy in trust has many benefits. For a start the proceeds of such a policy will bypass the deceased’s estate and as such beneficiaries will receive the money quicker and without any inheritance tax implications. It also gives the policyholder greater control over who receives the assets. Much work has been done by insurers in recent times to introduce digital and sometimes signatureless trusts. Royal London are one insurer to do this and to complement this they have also introduced an alternative to trusts designed for simple needs. In this article we look at what this new offering is along with the other capabilities they have introduced throughout the year.

For a large proportion of cases where a trust may be required the needs of the client are relatively simple. Royal London estimate that 50% of all life or life with accelerated critical illness cases that were not written into trust since 2015 were set up on a single life basis (own life) basis. Of these policies, they estimate that 80% had simple needs where the client would just want to nominate certain people to receive the proceeds of the policy on death.

Nomination of beneficiary

To help in such cases, Royal London have introduced the ability for customers to nominate beneficiaries as part of the application and as such enable them to make sure that the proceeds of a death claim go directly to the people the client wants to benefit.

The life assured will be able to select up to five beneficiaries to benefit from the proceeds and the percentage of the money that each will receive. This provides a far easier way to make sure the right people benefit without the need for a trust as Royal London will confirm who the proceeds of any death claims will be paid to within the terms and conditions of the plan which effectively writes this into the contract. Importantly the proceeds of any claims relating to either terminal illness or critical illness will still go directly to the life assured.

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As the nomination of beneficiary is written into the contract of the policy, Royal London are able to bypass the client’s estate and pay the proceeds directly to the beneficiaries meaning faster payment and no IHT implications.

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Life policies are often long term contracts and the clients’ circumstances may change. Where something changes and the client wishes to either change the beneficiaries or amounts allocated to them, this can be done by contacting Royal London by phone, email or post. Unfortunately changes cannot be made online at this point, however where a client does make a change an endorsement to the policy document will be issued to confirm that the change has been made. Alternatively if the client’s requirements become more complicated and require a trust, a form can be submitted which will override the nomination of beneficiary.

The nomination cannot be used on joint life policies or policies that are written on a life of another basis, however in both scenarios a trust is less likely to be required. Unless the policy is written on a second death basis (usually for IHT purposes), the proceeds of a joint life policy will usually go to the surviving life assured (although it may still be advisable to put a trust in place if a couple are not married or in a civil partnership) and for policies written on a life of another basis the proceeds will go to the policy owner. In both scenarios deceased’s estate is not an issue.

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Making trusts easier

Of course because the nomination of beneficiary is designed for simple needs, where a client’s situation is more complicated or related to business protection a trust will still be the best option.

During 2020, Royal London have introduced a number of developments to their trusts to also make these easier to implement. In recent months, they introduced a signature free trust option for business protection. This enables the adviser to submit the application along with the details of the trust which will then be in place from the date the policy goes live. Once live, details of the trust are then sent to all relevant parties without the need for the adviser to do anything further.

More recently, Royal London also introduced PDF trust requests for personal protection which can be used either in advance of the policy being set up or after the plan is in force. These forms only require a signature from the policyholder and do not need to be signed by the trustees, however do require a wet signature. Whilst we would prefer more digital capabilities with such forms without the need for a signature, Royal London do not need sight of the completed form and will accept copies sent via post or email (this should be secure email). This complements the digital trust capabilities Royal London already have for personal protection plans which can currently only be used in advance of a plan being put in force.

According to the Swiss Re Term & Health Watch 2020, only 10 to 11% of policies were put into trust in 2019. Clearly more plans could and should be placed into trust but for many insurers the process is often a cumbersome and requires multiple signatures (whether wet or digital) which is not helped by the pandemic we find ourselves in. Whilst the improvements made to business trusts are fantastic we would love to see Royal London implement this on personal protection for more complex cases. For simple personal protection cases the introduction of the nomination of beneficiary is a huge step forward. The pandemic has brought to light many of the complications of getting trusts signed and we applaud the work that Royal London have and continue to do to ensure that the right money goes to the right people as quickly as possible.

About The Author

Adam Higgs

Adam leads Protection Guru's detailed protection research and benchmarking of both product and operation features provided by insurers and has a vast knowledge of the protection market. He has been instrumental in building the protection comparison service Quality Analyser and maintaining the data to enable adviser to quickly and easily compare protection products based on qualitative measures. He also works with adviser firms to help in panel reviews and with insurers to help them understand the shape of the market, their strengths and the areas that could be improved in their products. In his spare time and when not spending time with his wife and two children, Adam is a keen Arsenal fan and enjoys hacking his way around a golf course.

5 Comments

  1. hugo craggs

    given How easy it is with most lenders to but life cover in trust why wouldn’t you? You have no idea what will happen, and so a trust is safer. That said I have steered clear of RL recently as their trust is not as user friendly as many others.

    Reply
    • Simon Dunn

      It might be worth revisiting RL, their trusts have recently been updated to minimize the signatures required. They are among the most straightforward on the market now.

      Reply
  2. Ruth Gilbert, Insuring Change

    I’m so delighted to see Royal London launch this much simpler solution for getting life cover set up right to go to the intended person.
    This is needed more than ever in 2020, as the % of cohabiting couples has increased again – more people who can’t just inherit via intestacy. (And even for those who can inherit the proceeds via the estate, probate delays were already bad in 2019, but in 2020 they’ve been horrendous.)
    Now single own life policies are are recognised as the most flexible and best value for money, it’s essential we don’t lose sight of who the money is for and how to get it to them.

    Reply
  3. Simon Dunn

    My understanding is that a joint life plan can potentially create IHT issues as 50% of the sum assured is deemed to have entered the deceased’s estate, even though the joint policyholder receives the full sum assured. Obviously, not an issue for those who are married, but those simply cohabiting could have issues in this scenario.

    Reply
    • Ruth Gilbert, Insuring Change

      Yes Simon, that’s right for most joint life – though it depends on the policy wording. I know of at least one provider on the D2C side who has got round it using my wording specifically designed to avoid this issue.

      Similarly, we’ve designed the Royal London beneficiary nomination wording specifically with the intention of keeping the death benefit out of the policyholder/life assured’s estate.

      Also IHT is only relevant to less than 5% of estates, of which those including life policies (understandably) comprise an even smaller proportion. So the most important thing is ensuring the more than 25% of couples under 65, when getting life cover, have it set up so the survivor can definitely get the money. Unlike most policies currently.

      Reply

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