A new poll for the Barnardo’s, the children’s charity, has this week revealed that while 58% of the general population have no will, almost three-quarters (74%) of cohabiting couples have no will in place.

Barnardo’s indicated that a third of those who had neglected to write a will said they had simply “never got around to it”.

Writing a will is crucial for good inheritance planning. It will ensure a smooth inheritance process for your family. If you have no will in place, you have made no formal plan for dividing up your estate, when you die.

Having no will in place could leave large portions of your wealth subject to inheritance tax, which is paid at 40% on any funds above the tax threshold (currently £325,000 per person or £650,000 for a married couple).

While this tax threshold, or nil rate band, for inheritance tax may sound generous, it is important to remember that it is levied not only on your property, but on your entire estate, which includes payouts from insurance policies, and other savings and investments as well. Consulting a financial adviser for qualifed inheritance tax advice is an important element of inheritance planning, and essential to avoid inheritance tax.

A will can also be used to nominate preferred guardians for children, if they are orphaned before they turn 18.

The Barnardo’s research revealed that 25% of over-55s surveyed believed that all their wealth would pass to their family, even with no will in place. However, if you die without a will, specific rules apply to dividing your wealth, and a surviving spouse is not automatically entitled to inherit everything.

In the case of a married couple in England and Wales, the surviving spouse receives only the first £125,000 from your estate, plus a half of the remainder, with the other half of the remainder passing to the children when they turn 18.

*Source: Barnardo’s survey of 2,221 UK adults, March/April 2010

Pension planning is on the minds of savers again, with 1 in 3 people thinking of setting up private pension schemes this year, compared with just 1 in 5 a year ago, according to Legal and General.

Increasing interest in a pension plan has been most marked among men, where 40% are now considering pension plans compared with 21% in 2009.

Interest in private pensions among women, however, has not changed significantly, although the trend is also upward. This year, 25% of women are actively considering private pensions, compared with 20% last year.

Not surprisingly, the bulk of interest in pensions planning comes from the 25 to 64 age group, while those younger or older than that show a decline in interest in pension plans, year on year.

To show the wisdom of making an early start on pension planning, Legal and General point out that aiming for a pension income of £20,000 per year at age 65 would mean monthly contributions of £234 for a 30 year old starting his pension plan today.

If the same person delayed starting their pensions planning by just 5 years, until they were 35, that figure would rise to £328 per month, to achieve the same target sum of £20,000.

For a man ten years older, in other words a 40 year old starting his private pension today, he would have to save £470 a month into his private pension to attain the same retirement income.

These projected pension plans do not factor in inflation, which would reduce what can be bought with £20,000 in the future.

Source: Legal & General MoneyMood Survey 2010

If you are one of the13% of people in the UK* who have taken out critical illness cover to protect themselves against losing their income through ill-health, you are probably aware of the hidden benefits to your children, contained in your policy.

If you are one of the 87% of people who have not taken out critical illness insurance, however – then read on.

Most insurers, including Aviva, Friends Provident and Prudential, now include critical illness insurance cover in your policy that covers your children as well, at no extra charge to you.

“Most policies include £20 – £25,000 of critical illness cover for any number of children, and cover them for the same illnesses as their parents,” said Assumpta Breslin, Insurance Adviser at Principle First.

“This means that all your children are covered, until they turn 18 or until the end of your critical illness policy, which ever is the sooner, against the diseases and conditions that are covered for you as policy holder.”

While children are much less likely to suffer a critical illness than we old crocks who are relatively advanced in years, critical illness claims for children do account for 2% of claims overall**.

Zurich Insurance has this month reminded us that there are nonetheless a sizeable number of unfortunate instances of critical illness among minors.

In 2006, for example, 1,400 children under the age of 14 were diagnosed with cancer and, of course, while heart disease or stroke are conditions that are relatively rare amongst children, leukaemia is more common, and that too is covered by most critical illness policies.

Aviva research states that of all children’s claims on critical illness policies, three-quarters relate to cancers, 10% to brain tumours, and 4% to strokes.

Other conditions more readily associated with children’s health, which would typically be covered by most critical illness policies, are bacterial meningitis, multiple sclerosis, and accident-related incidences such as loss of limb, loss of speech, loss of sight, and third degree burns.

In the UK, 1 in 4 men and 1 in 5 women will be forced to give up work due to critical illness, before they reach retirement age. For adults, critical illness is a real danger, and not just among the elderly. Legal and General points out that the average age for a claim on its critical illness policies is 45, and that 70% of claimants would be under 50.

Click here to enquire about critical illness cover

*Source: Aviva                      **Source: AXA

The average UK household would run out of money in just 14 days, if a wage earner was hit by critical illness or died.

This is because nearly two thirds (63%) of UK households have neither critical illness insurance nor life insurance, according to insurance giant Aviva*.

One family in 4 could raise only £100 of disposable income during the first week after the loss of an income, while the average weekly outgoings for a UK household is £471, Aviva said.

While 47% of people say they would use their savings in the event of an illness, 16% of people state they would be forced to sell their TV to raise money, if they had to give up work.

The facts are more shocking when you consider that 1 in 4 men and 1 in 5 women will have to give up work due to critical illness before retirement. The average age for critical illness claims, according to insurer Legal & General, is just 45. The most common illness behind insurance claims is cancer, which will affect 1 in 3 of us during our lifetime.

One hidden consequence of critical illness is that the healthy spouse may have to give up work as well, in order to care for the other. A family can find themselves quickly reduced from having two substantial incomes to living on benefits, as unexpected medical costs mount up and the costs of a mortgage, running the home, and children’s education continue as normal.

Many are unaware of the reality of state support in a critical illness situation. The Government Employment and Support Allowance provides just £95.15 per week to an individual who falls ill.

Aviva reveals that 31% of UK households rely on a sole breadwinner.

The average payout on an Aviva critical illness insurance is a tax-free lump sum payment of £78,707, the company said.

*Source: Aviva internal research + Opinion Matters poll of 1,008 UK residents aged 16-80, Jan 2010

Most of us have a life insurance policy, to ensure that our family is provided for at the end of our life, but far fewer of us have critical illness insurance.

However, if you are struck down by ill-health, your family may be deprived of your income, because you cannot work.

The figures may show that the likelihood of a critical illness is greater than you think.

The insurance companies tell us that 25% of all men, and 20% of women will be forced to give up work due to serious illness, before they retire. These are not only the elderly, approaching retirement age. Critical illness is just as likely to befall those who are relatively young.

In fact, the most common age for this to happen is 45, according to the insurance company Legal & General, and of those who claim for critical illness on Legal & General health insurance policies, 71% are under 50 years of age*.

Furthermore, over half of health insurance claims are due to cancer, and one in three of us will get some form of cancer during our lifetime**.

If you are unfortunate enough for this to happen, you may find that your partner must give up work as well, to stay at home and care for you. This can mean the loss of both family incomes and bring severe hardship, particularly if you have a mortgage, debts, and children in full-time education.

The consequences can be harsh. With the cost of university education now running to many thousands of pounds a year, a critical illness could block your children from completing their education, or force you to decide which one of your children gets to go.

Critical illness insurance

All of the above facts amount to one unavoidable conclusion: insuring yourself against long-term illness is just as important as insuring your life.

Critical illness cover provides protection against such an unexpected and abrupt ending to your working career.

It provides a single lump sum payout when you are diagnosed with one of a list of serious illnesses or medical conditions. This payout can be a lifeline that will pay off your mortgage, or provide a financial cushion for your family, to help see you through the personal crisis of losing your health. Many criticial illness policies also cover the health of your children, at no additional cost.

Which illnesses are critical?

While each of the various policies from the main insurers has its own list of illnesses that are covered, most cover the core conditions, including cancer, heart attack, stroke, kidney failure, major transplant, heart bypass surgery, and multiple sclerosis.

Reading the ‘small print’

For critical illness insurance, as with any form of insurance, every policy is different, and ‘the devil is in the detail’. In other words, it is essential to understand the small print. It is particularly crucial to understand the exclusions of any health policy, in other words, to understand what is not covered by the policy, as well as what is.

Making the application

The process of signing up for a critical illness insurance policy is equally important. Insurers often do not look at your full medical records when a policy is taken out. They rely on you to share all the information you are asked for, and even accidental failure to provide full details can render your policy null and void, if you later need to claim.

Get the right financial advice

This is why insurance should only be bought with the assistance of a qualified financial adviser, who has plenty of experience in dealing with applications, and knows the application process of your chosen insurance company.

Best of all is an independent financial adviser, who is not tied to one bank or insurer, and can look at all the various policies on the market. In other words, an adviser who can take what is known as a ‘whole of market’ approach.

Only an independent financial adviser can take into account your personal situation, and locate the critical illness policy that is exactly right for you. 

* Figures relate to Legal & General insurance claims in 2007.

**Source: Cancer Research UK

Aviva is planning premium discounts on its critical illness insurance for those who have come through cancer, and would therefore not have cancer cover in their policy.

“Aviva are planning to introducing price reductions for cancer exclusions as it is clearly the right thing to do for the customer. We will be making an announcement in the near future,” said Michael Whyte, chief underwriter at Aviva.

The reduced premiums acknowledge the fact that cancer, the most common claim under critical illness insurance, is excluded from the cover offered to customers with either a personal or family history of the disease.

Cancer accounted for 64% of all critical illness claims made to Aviva during the first half of 2009. In the same period, 9% of claims were declined as the condition claimed for was not covered by the claimant’s policy.

Legal & General, Zurich, LV= and Axa have already introduced favourable premiums on their critical illness insurances, to recognise exclusions under their cover. L&G claims to offer reductions of up to 18% for those with a personal or family history of cancer.

What is critical illness insurance?

Critical illness insurance provides a single payout if you are rendered unable to work due to a defined list of diseases and conditions. In addition to cancer, the main illnesses normally covered would include heart attack, stroke, kidney failure, major transplant surgery, heart bypass surgery, and multiple sclerosis.

With critical illness insurance, as with all insurances, the small print is critical and is best explained by a qualified financial adviser.

First, the common conditions of back pain and stress are usually not covered. Second, stroke and many other ailments are not covered in many critical illness policies. Heart attacks in particular must be of a certain level of severity, and leave permanent symptoms. No claim will be entertained if it results from alcohol or drug abuse, criminal acts, or injuries deemed to be self-inflicted.

Another factor to consider is that, due to advances in medicine, certain medical procedures that would previously have been regarded as critical are now excluded from some critical illness policies.

These are the conclusions of the charity Elizabeth Finn Care, which specialises in assisting professional people in need of financial and emotional support due to changes in their circumstances.

The charity compared the expectations of two groups, consisting of professionals in the above age range, and a group representing the parental generation of these professionals (i.e. people aged 65-75 with children).

Of the professionals surveyed, 51% said they would encounter financial problems if they did not receive their expected inheritance. Three in 5 said they were counting on receiving between 71% and 100% of their parents’ wealth.

The reality is likely to be very different, however, as only 27% of the parents’ group declared they would be in a position to bequeath such a large portion of their estate.

Elizabeth Finn’s research has also uncovered a widespread lack of understanding among the professionals of the value of the state pension and the cost of care in old age, with 55% declaring they believed their state pension would cover the cost of a nursing home bed.

The basic state pension currently pays £95.25 per week, compared with an average cost of £540 per week for residential care, the charity said.

The conclusion was that reliance on inherited money as part of retirement planning is a false expectation, and provision for retirement through a personal pension, or other investments, is essential.

*Source: YouGov survey for Elizabeth Finn Care of 1051 professionals aged 35-45, and 539 adults aged 65-75 with children

Your annuity income in retirement may now be decided by where you live. Four of the nation’s largest insurers are using locational information to predict the probable longevity of customers seeking a pension annuity.

Using data such as that provided by pensions consultancy Watson Wyatt, the insurers Aviva, Legal & General, Prudential and Canada Life are now looking first at your postcode, before calculating the annuity rate they will offer you.

If you live in an area where people are deemed to be more healthy, then you may live longer. As a result you may be ‘penalised’ for your good health, as you will probably draw your retirement income for longer. In fact, your retirement income from your annuity could be 3%-7% lower than for someone in a ‘less healthy’ postcode area, who is expected to die earlier.

Watson Wyatt’s research has shown that male longevity is highest in the SE of England, where the town of Montacute, Somerset leads with field with a male life expectancy of 90. At the other end of the scale, the shortest expectancy of 82 for a male in Kilbirnie, Ayrshire is three years short of the national average.

Retired workers in Kilbirnie may have worked in the town’s steelworks or flax mills, while Montacute is a non-industrial village in an agricultural area. While Kilbirnie has 13 fast food outlets for 8,000 people, the residents of Montacute attribute their longevity to their tradition of market gardens, and a diet rich in fresh fruit and vegetables.

Watson Wyatt predicts that insurers will be paying much closer attention to wealth and lifestyle data by postcode in the future, pointing out that the unexpected improvements in mortality over the past 20 years are now contributing to much of the financial strain experienced by pension funds and occupational pension schemes.

Much of the land held by native Americans (formerly known as American Indians) is held in group ownership, a legacy of the days when John Wayne conquered the great plains, and native Americans were not permitted to write a will.

Large parcels of tribal land came from ancestors who handed the land down to their descendants as tenants-in-common.

The result has been chaos, and today it is common for one small parcel of tribal land to have many hundreds of individual owners.

The US government is now striving to consolidate ownership with a programme to enable native Americans to buy from each other, so that the number of owners for each parcel is reduced. The new owners of the larger land parcels would then have the ability to preserve their land bank intact, by passing it on in their will.

Writing a will

Here in Europe, writing a will is equally essential for ensuring an efficient and orderly asset transfer to those precise individuals we wish to nominate as our heirs.

Dying with no will in place is known as ‘dying intestate’, in which situation the government takes over the distribution of your assets under the ‘rules of intestacy’.

By ceding control to the government in this way, your spouse and children may receive only part of what you intended, and if you and your partner are unmarried, your partner is automatically entitled to nothing at all – the notion of a common law wife or husband is a myth.

Making a will under the guidance of your financial adviser can also protect you from Inheritance Tax at 40% on parts of your wealth when you die, and in your will you can also nominate guardians for your children, if they should be orphaned before the age of 18.

There are currently £2.5 trillion in assets earmarked by parents as inheritances for their children and relatives, the insurer announced this week.

This staggering sum is held by two-thirds of over-55s covered by an Aviva survey*, with 58% of those questioned wishing to bequeath assets to their family and 46% mentioning specifically the family home as the principal asset they will leave.

Given that Inheritance Tax applies to all eligible wealth at 40%, you can see why the taxman might be rubbing his hands with glee.

However, any financial adviser worth his salt will tell you that, with a little financial planning, Inheritance Tax is the most avoidable tax of all, and can be minimised or eliminated completely by putting the correct structures in place.

Each person has an Inheritance Tax allowance of £325,000 (double that for a couple to £650,000). Where the value of your wealth exceeds that allowance, it is subject to Inheritance Tax at 40%.

While these ‘nil rate band’ allowances seem generous, they apply to your whole estate.

This consists of your home, other properties, savings and investments, insurance policies, other assets, and cars. Take away the amount of your debts and liabilities upon death, and you have the net value of your estate.

Life insurance in trust

By using a trust you can move assets out of your estate, so that their value does not push your net worth up towards the threshold at which you become liable for Inheritance Tax.

By filling out a simple form when taking out a life policy, you can hold the life insurance in trust so that the cover does not inflate the value of your estate. An added advantage is that the payout from the life insurance policy will not be held back upon your death, but paid quickly and efficiently to your family.

Inheritance Tax exemptions

One tax-savvy way to transfer wealth to your children is by making gifts that are not subject to Inheritance Tax - so-called Inheritance Tax exemptions.

There are various kinds of IHT exemptions, subject of course to the limitations of the Inheritance Tax allowances:

• Spouse exemptions
• Small gift exemptions, of up to £250 to any number of persons in a given year
• Annual exemptions to your children of £3,000 per year
• Wedding exemptions of £5,000 to a child or £2,500 to a grandchild when they marry
• Regular gifts of a ‘reasonable size’ to be classed as part of your normal expenditure – for instance maintenance payments or funds for a child in full-time education

There are also a number of ‘potentially exempt’ gifts, known as potential exempt transfers or PETs.

These are only ‘potentially’ exempt because they are not immediately free of tax. You must survive for 7 years after making the gift, before it becomes tax exempt. In other words, a gift made in 2010 becomes tax-free only if and when you have survived until 2017.

The most common PET is probably the family home, transferred to your children and becoming tax-free 7 years later.

There is one important catch with regard to transferring your home, however. If you continue to benefit from the home, by living there, it is classed as a ‘gift with reservation’ and is still subject to tax.

This can be avoided if you set up an arrangement to pay your children rent at a commercial rate, in which case you are viewed as a tenant.

Source: Aviva online poll of 1,337 UK adults