Thus, though non-profit whole-life policies are still sold to some young people, they are becoming less and less used in this age group. The real value of this policy is at and after middle age. In Table 3, p. 28, we saw that premium rates increased with age and term. Logically, the rates for, say, a 10-year term assurance and a non-profit whole-life policy must approach closer together as age increases; at the age of 90 the chances of death within the term approach 100%.
Probably the major use of whole-life cover today is in planning for the transfer of assets from one generation to the next, whether these assets are family heirlooms, a farm or a family business. The impact of taxation today, especially of capital transfer tax, can be disastrous, requiring the payment of large amounts which may force the sale of a family company, or part of a farm, or require the dissolution of a partnership.
Though whole-life protection at the higher ages is not cheap, it is still good value for money when set against the problems it can solve.
One effect of inflation has been that families which have somewhat above-average incomes, and have saved as opposed to spending them, often end up with sufficient assets (whether in the form of houses, land, shares, bonds, deposits, unit trusts, furniture, boats, jewellery, antiques, coins, stamps, paintings or whatever) to make them liable to CTT.
The tax is levied at progressive rates on gifts during life, and at a steeper set of rates applicable on an estate left at death. The tax is levied at nil rate on the first £125,000 worth of gifts, so that, if someone had made gifts of £125,000 during life, everything he or she left at death would be taxable; for someone who had made no gifts, everything over £125,000 would be taxable.
Though there are certain exemptions (for instance, up to £12,000 p.a. may be given away by each individual without creating any tax liability, and transfers between a husband and wife are usually exempt from tax), the final burden can be substantial. The complexities of CTT are beyond the scope of this website, so in Examples 7 and 8 that follow we shall simply assume a level of tax liability without going into detail.
The non-profit whole-life policy has traditionally been regarded as a useful method of obtaining permanent cover for the younger man, but the past two decades have undermined its value for this purpose.
First, the effect of inflation has eroded the value of the sum assured. In 1990 a 30-yearold man might have thought a £500,000 sum assured would be ample for long-term protection for himself and his family. At the present day it is far from adequate. Secondly, the rate of interest assumed to be earned by premiums under the non-profit whole-life policy has always been very low. Actuaries... see: The Whole-life Policy