Life claims: balance of risk, the latest joint report from Swiss Re and Insuring Change, presents the latest data showing the usage of trusts and beneficiary nomination with new pure protection level and decreasing term life policies.
The percentage of new policies written into trust has risen again, but only slightly, the report finds. The percentage of all new policies written into trust rose by 1.6 percentage points up to 18.2% of all term (including joint life) policies, following an increase by 4.0 percentage points in 2022.
This implies a maximum of 22.8% of single own life policies placed in trust in the same period, up from 21.1% and, consequently, a minimum of 77.2% of single life term policies still not written in trust, a modest improvement from 78.9% in 2022.[1]
Ron Wheatcroft, Technical Manager Swiss Re and co-author of the report says there is still a long way to go for all life cover to reliably reach those it is meant for and to do so without unnecessary delays.
Ron Wheatcroft, Technical Manager Swiss Re, comments: “With momentum showing signs of building for beneficiary nomination as an alternative to a trust, it is intended to collect actual numbers in both categories where possible in future. Indications from the insurers offering beneficiary nomination suggest that inclusion of the beneficiary nomination policies could have reduced the beneficiary gap to 68%, another 9.0 percentage points worth of single life policies with direction of benefits.
“The percentage changes in single policies written in trust vary by product type with an improvement of 0.6 percentage points for new Level Term policies. Improvements for policies which include a critical illness benefit and where the policyholder is likely to intend the benefits to be paid to themselves on diagnosis of a critical illness were 3.5 percentage points with level term and 3.9 percentage points with decreasing term.”
Wheatcroft points out that the focus on inheritance tax in the UK could be a leading reason for not putting policies in trust.
“The report suggests that the legacy of focus on inheritance tax as the top reason for putting a life policy in trust could help explain why the majority of people might immediately think a trust isn’t important for them. A reasonable conclusion which could be drawn from past inheritance tax data is that there is less than a 1% chance of a term life policy being part of a taxable estate. Even in the light of the changes announced in the Budget, this would change little, while speed of payment and to the intended beneficiary will remain the primary reasons for using a trust or beneficiary nomination.”
Finally, Wheatcroft notes the long-term issue still comes back to reliably putting funds into the hands of those who it was meant for and without unnecessary delays. Wheatcroft is clear that correctly setting up a policy at the outset is essential.
“There is still a long way to go for all life cover to reliably get funds in the hands it was meant for, and without unneeded delay. It requires processes and communications across all parts of the distribution chain to be working together well to achieve this and it’s heartening to see the examples where this is being done already, indicating it can be done at scale.
New policies sales data are taken from Swiss Re's Term & Health Watch 2024 report published in May 2024.
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