May 29, 2018

bank of mum and dad

Why does the Bank of Mum and Dad need protecting?

If, once you’ve read this case study, you’d like to talk through your situation, please call 0800 644 4468 – Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.

Call me back

Legal and General provided figures for the BBC showing that almost 317,000 housing transactions this year would rely on at least some parental help.

Whilst, overall lending was expected to drop to £5.7bn this year from £6.5bn in 2017, it is still a monumental amount of money that needs to be protected.

Why do the Bank of Mum and Dad need protecting?

1. If the money given was a ‘gift’

Making a gift to your family while you’re alive can be a good way to reduce the value of your estate for Inheritance Tax purposes and benefit your loved ones immediately. Simply put, so long as you live more than 7 years from when you make this gift, the beneficiaries of your generosity won’t have to pay tax on your gift when you die. But, if you unfortunately don’t live more than 7 years after you’ve made the gift, they might have to pay Inheritance Tax. In this situation, your gift becomes known as a ‘potentially exempt transfer’.

How to Protect:

Gift Inter Vivos – Gift Inter Vivos insurance policies are 7 years in length. The life insurance decreases in line with the Inheritance Tax liability it is covering ie the amount given towards the property. This amount insured is only payable upon death during the term. 

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

2. If your child/ family member is too ill to work and pay the mortgage.

If your son / daughter becomes ill and can not keep up their mortgage payments, the property may become repossessed. Along with the investment from mum and dad…

How to Protect: 

Income Protection – Income Protection Insurance helps to protect your son / daughter’s income if they were unable to work as the result of an accident or sickness. This type of policy will pay out a monthly benefit or income until they can return to work. This makes it more likely they can keep up with their mortgage payments.

Critical Illness Critical Illness Insurance pays out a tax-free lump sum if your child / family member becomes seriously unwell. 

3. If your child / family member dies.

In the highly unfortunate event that your child/ family member dies and there is no will, how will you recoup your investment? The property may not pass directly back to you. As in the lady’s case mentioned on the BBC, her parents do not own any of her flat as a result of their gift of a deposit to her.

How to Protect: 

Level term – Life insurance that pays out a cash sum if your child / family member dies or are diagnosed with a terminal illness during the term of the policy. This MUST be coupled with a

Life Insurance Trust. In order to guarantee the insured amount is paid directly to you the ‘Bank of Mum and Dad’ as beneficiaries. Trusts are not regulated by the Financial Conduct Authority.

trust with playbutton

We help all our customers to place their cover in trust for NO additional cost.

The Simple rule is, if anyone is borrowing or lending, specialist protection advice should be sought out.

Next steps

Whilst you are welcome to get a quote on-line we would recommend you talk to one of our advisers.

Any quote that your adviser provides you with will take into account to your circumstances, your medical history, as well as your budget!

An on-line quote is just that – a quote – it isn’t a definite offer of cover. What really matters is the premium you are offered, after your application has been assessed.

Call Freephone 0800 644 4468 – Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.

Please feel free to read our Independent client reviews, or read about the team at Future Proof.

Call me back

Interested in related stories?

Take a look at our handy guides ‘What Cover is Right for me?’

Do you suffer with a medical condition and concerned you can’t secure Life Insurance?  Please view our ‘Medical Guides’ for further information.

Whilst we will make every endeavour to help someone to arrange insurance, there is no guarantee of success.  All applications are subject to underwriting.

Get a Quote

This feature was produced with thanks to BBC news, Legal and General Financial services and the Money Advice service. May 2018.