Standard Life Protection & Healthcare Ezine

Standard Life's Protection & Healthcare newsletter for advisers

September 2006

Life Insurance with Tax Relief (LITR) is Standard Life's latest addition to its range of protection products. LITR allows clients to take advantage of the A-Day changes to pensions rules that brought new opportunities for pension savers as well as great opportunities for the life insurance market.

LITR is a pure life insurance policy. Payments automatically include basic rate tax relief (22%) and higher rate taxpayers can claim any additional tax relief back on their annual tax return. The LITR plan will normally pay out a tax-free lump sum on death or serious illness.

Although Critical Illness and Waiver of Premium Benefit cannot be integrated within the LITR plan, a Critical Illness plan can be taken out separately with Standard Life.

So what does our LITR plan offer?

Tax relief on payments.
Single life plans with level or decreasing terms.
Free conversion option, which allows your client to switch the plan to a regular life insurance product, without any extra underwriting. The new price is simply the original gross payment with the tax relief removed (see below for more details).
Free cover for mortgage related products.
Serious ill health benefit.
Clients can be covered to age 75.
Lifestyle, Extension and Increase options available.

What are the selling opportunities?

Options
You can cater for your clients' protection needs by using the tax savings available through LITR. The money saved can be used to buy a higher level of cover or additional 'options' that are available within a LITR plan. For example, the 'Lifestyle option' allows clients to increase their cover when a lifetime event occurs, such as the birth of a child, marriage, civil partnership, job promotion. The 'Extension option' allows clients to extend the term of their plan at specific dates, dependant on whether it is set up on a level or decreasing basis. Both options are inexpensive and have to be taken at the outset of the plan. Standard Life will not ask any further underwriting questions when the options are exercised.
Joint Life v Single Life
Many couples take out traditional joint life insurance policies. These have the advantage of covering their partner financially, and the disadvantage that the joint policy will only pay out once. Due to the tax relief available, having two single LITR policies may cost the same, or even less than a traditional joint life insurance policy. LITR allows clients and their partners to double their cover for about the same cost - plus both policies would pay out on death.
Cover that SIPP tax liability
After taking the tax-free lump sum benefit of £200,000 (25%) on a SIPP fund worth £800,000, your client will have £600,000 left to buy an annuity or take drawdown. If they were to die at this point the beneficiaries would inherit this money. However, a tax charge of 35% would be due on any remaining drawdown fund, if the beneficiaries take it as a lump sum, the tax charge in this example would be £210,000. A LITR policy could cover this liability and provide a normally tax-free lump sum to pay this cost. Other known IHT liabilities can also be covered in this way.

Direct access to Standard Life Underwriters
Make your life easier by calling our underwriters directly on 0845 60 60 135, any time between 8.30am and 5pm, from Monday - Friday. You can discuss cases that have been submitted and even cases that you haven't submitted yet. Our underwriters will provide specialist advice that will help you set the right expectations with your clients.

Dispensing of death benefits
LITR death benefits can be written under a Trust, or clients can complete an expression of wish form.

Who can sell LITR?
The FSA has confirmed in its quarterly consultation paper (Chapter 6, page 34) that both ICOB and COB advisers can sell this type of plan.

HM Revenue & Customs (HMRC) limits
Any payments made to a LITR plan will need to adhere to the annual limits set out by HMRC. In 2006/07 these are £3,600 gross for non-earners or 100% of gross earnings (up to £215,000, Annual Allowance, is tax-free). LITR is a pension term assurance product so its benefits will count towards your client's available Lifetime Allowance, which is £1.5m for 2006/07, increasing to £1.8m in 2010/11.

Free conversion option
Our free conversion option is automatically included within every plan. This allows LITR clients who have reached 90% of their Lifetime Allowance Limit to switch their LITR into a traditional Standard Life term insurance policy without any extra underwriting. On conversion the benefits will no longer be tested against the clients' Lifetime Allowance. The new price at conversion is quite simply the removal of the tax relief, so the client pays the gross payment set at inception. Many other providers will only offer new rates at the time of conversion these rates will almost certainly be higher as the client will be older, this based on current rates.

Primary/Enhanced Protection
Please remember that if your client is thinking about applying for, or has already applied for either Primary or Enhanced Protection, then payments into a LITR policy will result in the loss of any Enhanced Protection secured. Primary Protection will also be effected if payments result in a breach to Lifetime Allowance Limit upon death.

20% extra commission
Advisers can receive an extra 5% Lautro commission by quoting their client's LITR plan on:

The Exchange
Webline
Assureweb
adviserzone

A further 15% Lautro commission is available if you submit an LITR plan electronically through 'Online New Business' via the adviserzone.

When you submit protection business online, you will enter a secure site that requires a password. If you don’t already have a password, please call our e-commerce helpdesk on 0845 60 60 036 (8.00am to 5.30pm, Monday – Friday) and they will be happy to allocate you one instantly.

Literature
All protection literature including product and sales material can be found in the Literature section of the adviserzone.