How a Simple Form Could Save Your Family Thousands in Tax

January is the most popular time of year for life insurance policy sales, with many people using the New Year to get their finances in order. Whether you're thinking of getting a policy or already have one in place, missing out on this one detail could cost you thousands in inheritance tax.

Life insurance is designed to provide peace of mind and financial security when you die. But new research from MoneySuperMarket reveals that one in five people (21%) don’t realise that payouts may be subject to inheritance tax if the policy isn’t written into a trust*.

If a policy isn’t placed in trust, the proceeds could form part of your estate and face inheritance tax – currently charged at 40% above the threshold – potentially reducing the amount your loved ones receive.

Setting up a trust is also a mater of saving time and making sure the policy's payout gets to your loved ones when they need it.

Unlike assets that go through probate, which can delay access for months or even more than a year, a trust allows your family to receive funds quickly and privately. This immediate access can be critical for parents who want to ensure their children are supported without financial uncertainty after a loss.

Kara Gammell
Personal Finance & Insurance Expert

With a trust, you get to control what happens to your life insurance

Putting your life insurance policy in trust can make a big difference for your loved ones. It means the payout usually bypasses probate, so your family can access the money faster at a time when they may really need it.

Not only can it help reduce inheritance tax, but it also gives you greater control over who receives the money and when. This is particularly useful if you have young children or dependents who may not be ready to manage a lump sum.

The good news? Setting up a trust is quicker and easier than most people think, and many providers offer this service for free. It’s a simple step that can make a huge difference in protecting your family’s financial future.

How to set up a trust:

• Ask your insurer for a trust form

• Choose your trustees (This will be someone you believe could be responsible enough to manage your assets)

• Name your beneficiaries (Who you would like to benefit from your assets, so typically your children or other loved ones)

• Sign and return the form to your insurer, and confirm with them that your trust is in place

If you already have an active life insurance policy, you can usually add a trust later. Speaking to a solicitor or financial adviser can provide extra peace of mind.

^{Sources
*MoneySuperMarket’s survey research was conducted by Censuswide, among a sample of 2,000 nationally representative UK respondents (Aged 18+). The data was collected between 31st October and 3rd November 2025.}