‘Inheritance tax insurance’ enquiries are soaring – but is it worth it?

Brits worried about looming inheritance tax bills brought on by Rachel Reeves’ Budget changes are turning to a special type of insurance to pay the cost. But the cover – which can run to thousands of pounds a month – could be out of reach for those who are asset rich and cash poor.

Financial advisers told MoneyWeek they have seen a spike in enquiries about whole of life insurance since Autumn Budget 2024, as a way to pay for an expected new wave of inheritance tax bills.

Whole of life insurance, also known as life assurance, is a type of life insurance policy that provides lifelong coverage. It pays out a lump sum to your beneficiaries whenever you die, as long as premiums are maintained.

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Unlike term life insurance, it doesn't have an end date. This makes it a popular choice for those looking to leave a legacy for their family, cover funeral expenses, or help reduce an inheritance tax bill.

The trigger in demand for whole of life insurance was Rachel Reeves’ announcement pensions would be brought into the scope of inheritance tax from 2027, as well as, from next year, tens of thousands of family businesses and farms that had previously been able to avoid inheritance tax.

Edward Durell, managing director at Cover Direct, said: “We are seeing more demand and increased clients asking about whole of life policies, how they work, how much they cost.”

“Whole of life policies can be expensive, but having a good understanding of your position, what you will spend over time, what you can gift and accordingly what might constitute your final estate, is vital to make sure the right value is insured and equally ensure the cover and premium is as low as possible,” he added.

The problem, said Alan Lakey, director at CIExpert, is, like most insurance, whole of life cover becomes more expensive the older you start the policy – and many people wait too long.

“Most people only start considering whole of life policies once they are in their 70s upwards when the cost is extremely high, and generally unaffordable. Most of these people are asset rich but income poor and IHT mitigation plans are untenable,” said Lakey.

“It highlights why taking steps at an early age can pay dividends.”

How much does a whole of life policy cost?

To take out a whole of life policy at age 60 to cover the cost of a £300,000 inheritance tax bill – the roughly projected average for London in the 2026/27 tax year – would cost a non-smoker around £1,000 a month, or £12,000 a year.

That’s according to exclusive figures for MoneyWeek from CIExpert, an insurance specialist financial adviser.

But wait another 10 years to age 70 – the age financial advisers say most people considering whole of life policies are – and that jumps to nearly £5,000 a month, or £60,000 a year.

Act early, at age 50, and the cost of a whole of life policy is a much more manageable £300 a month, or £4,800 a year.

However the higher the predicted inheritance tax bill the more the cost of the whole of life policy to cover it, which really starts to escalate.

For a 60 year old taking out a whole of life policy to pay a £1m inheritance tax bill the cost jumps to £1,400 a month, or £16,000 a year. For someone aged 70 it soars to more than £7,000 a month, or £87,600 a year.

MoneyWeek asked CIExpert to crunch the numbers on what it would cost to take out a whole of life policy at various life stages, to cover the cost of varying amounts of inheritance tax.

Source: CIExpert. The table has ignored offshore plans and also the Vitality plans where the initial cost can increase. Also assumes good health and non-smoker status.

The average amount of IHT paid across all taxpaying estates has increased slightly by just under 0.5% (£1,000) between the tax years 2020 to 2021 and 2021 to 2022, and now stands at £215,000, according to official figures published in 2024.

But this is expected to increase. The average inheritance tax bill in Greater London is predicted to be £275,000 by 2026/27 and even higher in Inner London at £340,000, according to analysis by law firm Irwin Mitchell.

For farms and family businesses – which had previously benefited from 100% relief from inheritance tax under agricultural property relief and business property relief, but from April 2026 will have to pay inheritance tax – the bills could be much higher.

MoneyWeek spoke to one family business facing a £6m bill.

What are joint life second death policies?

While whole of life policies are good for single people, often those in a couple will take out a ‘joint life second death’ policy.

A joint life second death policy is a life insurance policy taken out on the life of two people and will pay out after both people have passed. Joint life second death policies tend to cost less in monthly premiums, because the premiums will often be paid for longer.

Wes McCranor, director at Sphere Assured, explained: “Inheritance tax is usually only due after both partners have died because assets often pass tax-free between spouses when the first one dies because of the spousal exemption.

“Using a joint life second death policy aligns with when IHT would be due on the estate which is when both partners (policy holders) have passed,” he said.

McCranor has seen a peak of interest ‘joint life second death policies, as well as standard whole of life policies.

Edward Durell, managing director of Cover Direct, crunched the numbers on how much a joint life second death policy might cost a month versus a single whole of life policy.

Writing a life insurance policy in trust

Financial advisers are advising clients who take out a life insurance policy to cover inheritance tax to make sure the policy is written in trust.

With a life insurance policy written in trust, the proceeds of the policy can be paid directly to your intended beneficiaries, rather than to your legal estate. This means there is no IHT to pay on the payout.

Bronja Whitlock, sales manager at Best Insurance, said: “An important factor is writing the policy into trust as there’s no point being covered for it to be then taxed.

“Thankfully, most providers have an online trust section on the application so it’s an easy process and secures the money going to the right person(s).”

Wealth manager Quilter saw an almost 200% increase in the number of lifestyle trusts opened for IHT planning in 2024 compared to 2023, and uptake in 2025 is already on track to far surpass this level, it said.