One of the things I regularly see when reviewing a client’s protection is that their wider estate planning has moved on considerably, while the insurance arrangements sitting alongside it have not.
That is understandable.
A policy may have been arranged several years ago for a very specific reason. Since then, the client may have sold a business, acquired further property, made substantial gifts to children, changed their borrowing or simply seen the value and composition of their estate evolve.
The policy is still there.
The question is whether it is still doing the job it was originally intended to do.
For me, that is an important part of the protection conversation within succession planning.
Having Cover Is Not The Same As Having The Right Cover
When a client tells me they already have life cover in place, that is rarely the end of the discussion.
I want to understand why it was arranged.
What liability was it intended to address? What did the estate look like at the time? Has that liability increased or reduced? Have assets moved? Has the client subsequently made gifts? Is the policy structured appropriately for what the family is now trying to achieve?
The answers can be very different from those that applied when the cover was first taken out.
Consider a client who originally arranged protection against a relatively straightforward estate.
Several years later, they may have transferred significant assets to the next generation, retained substantial property wealth and sold an interest in a business.
Their succession strategy has changed considerably.
If the protection has not been reviewed alongside it, there is a risk that the two are no longer aligned.
That is why I think protection should be treated as part of an evolving succession strategy rather than as a one-off insurance transaction.
Where Is The Certainty In The Plan?
Estate planning can identify a future inheritance tax liability with considerable sophistication.
But there is a separate practical question:
If that liability ultimately arises, where will the money come from?
For some families, the answer may be existing cash or investments.
For others, a significant proportion of the estate may be held in property, businesses or other assets that cannot necessarily be realised quickly, or which the family would prefer not to sell at that point.
This is where protection can become relevant.
Where there is an identifiable long-term liability, whole-of-life cover may provide a defined source of capital when it is eventually required.
The purpose is not simply to insure a tax bill.
It is to create greater certainty around the funding of that liability and potentially reduce the family’s dependence on selling, refinancing or restructuring assets at a difficult time.
Whether that is appropriate will depend on the client, affordability, underwriting, the wider estate strategy and the alternatives available.
But I believe the funding question should form part of the planning conversation.
Lifetime Gifting Creates A Different Problem
The protection requirement can look very different where a client is transferring wealth during their lifetime.
A potentially exempt transfer can leave an inheritance tax exposure for a defined period following the gift.
That is a temporary risk, rather than necessarily a permanent one.
The protection therefore needs to reflect that.
In appropriate circumstances, term assurance can be used to provide cover during the period in which a liability may remain.
The distinction matters because good protection planning should start with the risk rather than the product.
I am less interested initially in asking, “How much life cover can we arrange?”
I would rather establish:
What is the financial risk? How long does it exist for? And what would the family need if it crystallised?
Only then can you properly consider what form of protection may be appropriate.
The Existing Policy Review Can Be Just As Important As Arranging New Cover
There is sometimes an assumption that protection advice means introducing another policy.
Often, the more valuable exercise is reviewing what the client already has.
That can mean looking across several arrangements taken out at different points in their life and establishing what each one is actually intended to achieve.
I would typically want to understand:
- what each policy was originally arranged to protect;
- whether the sum assured still reflects the relevant liability;
- whether the term remains appropriate;
- how ownership and any trust arrangements fit with the wider estate strategy;
- whether significant gifts or changes in asset values have altered the requirement;
- whether existing cover can still play a useful role before anything new is considered.
This is particularly important for clients whose financial affairs have become more complex over time.
The existence of several policies does not necessarily mean there is a coherent protection strategy behind them.
Equally, older cover can sometimes be extremely valuable and should not simply be replaced because circumstances have changed.
The objective is to understand what is there, why it is there and whether it still fits.
Protection Should Sit Alongside The Wider Advisory Team
Succession planning is rarely the responsibility of one adviser.
Private client lawyers and tax advisers may establish the legal and tax strategy. Wealth managers may be considering how assets are invested and ultimately transferred. Accountants, trustees and other specialists may each have an important role.
Protection advice should complement that work.
My role is not to determine the client’s tax or legal strategy.
It is to understand the financial outcome that strategy is seeking to achieve and consider whether protection can help provide the capital or certainty required to support it.
That distinction is important.
It also means some of the best protection conversations begin with another professional adviser recognising that there is an implementation question still to answer.
The estate plan may be clear.
The liability may be understood.
But the family may still need to determine how they would actually meet it.
Review Protection When The Estate Changes
For that reason, I do not think protection should only be revisited when a policy reaches a particular anniversary or when the client happens to think about their insurance.
There are natural points within the succession-planning process when it is worth asking whether the protection still fits.
A significant lifetime gift.
The sale of a business.
A material change in property wealth.
New borrowing.
A change in family circumstances.
A substantial shift in the expected value or composition of the estate.
These are all events that can alter both the liability and the financial resources available to meet it.
If the succession strategy is being reconsidered, the protection supporting it deserves to be reconsidered too.
The question I would encourage advisers and clients to ask is therefore not simply:
“Do we have life cover?”
It is:
“Does the protection we have today still reflect the estate, liabilities and succession strategy we have today?”
Having life cover is not the same as having the right life cover.
Protection should evolve alongside the estate.
This article is intended for general information only and does not constitute tax, legal or financial advice. The suitability of any protection arrangement will depend on individual circumstances and appropriate specialist advice should be sought.
