Inheritance tax and life insurance

[CEvert]

I wonder if someone can answer the following questions?
I have taken out a life insurance policy which pays out £x when I die or if I were to get a critical illness.
Is this lump sum tax free if I were paid this whilst I am alive (ie I have a critical illness)?

And what about upon my death?
What tax would be on levied on it?
And would it form part of my estate for inheritance tax?

I hear that you can set up a trust so that if you are likely to be above the IHT threshold, you can separate the pay out from your assets.

You need to look at your policy and speak with the insurer. It really is as simple as that.

It can be paid into a trust, which would be outside your estate. You need to get professional advice on this though.

Normally insurance policies are held in trust and don't fall within your estate. This is to avoid them being liable for IHT. If you check your policy wording it will probably say that it's held on a discretionary trust.

When I took out the mortgage with Halifax I also took out a total mortgage protection plan.
It has both life cover and critical illness benefits.
I have now repaid the mortgage but had kept the policy going.

I recently called Halifax and they said as it is a mortgage protection plan and not a life insurance policy, it is not written in trust.
So if I were to pass away during the term of the policy, the money would be dealt with by the executor of the will and be paid in to my estate.

My questions are
? Can the sum be paid into a trust so that it falls outside my estate?
? If my will specifies that the life cover pay out goes to a beneficiary, can it go straight to them hence avoiding IHT?
? Or do you think it would be better to cancel this and take a life insurance policy which is written in trust?

In Germany life insurance does not constitute part of the deceased's estate, but belongs to the beneficiary.
I assumed it would be the same here as seems logical.

The critical illness insurance I know nothing about.

If you will specifies that the life cover pay out goes to a particular beneficiary it will be part of your estate and subject to IHT. As for the other questions you need to speak to your insurer.