Life insurance policies in the UK are typically divided into two categories:
1 Term insurance
2 Whole of life insurance.
Term insurance provides coverage for a specific period of time, such as 20 years, and pays a benefit to the policy's beneficiaries if the insured person dies during the term of the policy. Term insurance is generally not subject to income tax or capital gains tax in the UK.
Whole of life insurance, on the other hand, provides coverage for the entire lifetime of the insured person and includes an investment component, such as a cash value or savings element. The investment component of a whole of life insurance policy may be subject to income tax or capital gains tax, depending on how the funds are used.
For example, if you receive a lump sum payout from a whole of life insurance policy and you use it to invest in a taxable investment, such as a rental property, you may have to pay tax on any income or capital gains you earn from that investment. Similarly, if you receive a regular income from a whole of life insurance policy, such as an annuity, that income may be subject to income tax.
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1 Term insurance
2 Whole of life insurance.
Term insurance provides coverage for a specific period of time, such as 20 years, and pays a benefit to the policy's beneficiaries if the insured person dies during the term of the policy. Term insurance is generally not subject to income tax or capital gains tax in the UK.
Whole of life insurance, on the other hand, provides coverage for the entire lifetime of the insured person and includes an investment component, such as a cash value or savings element. The investment component of a whole of life insurance policy may be subject to income tax or capital gains tax, depending on how the funds are used.
For example, if you receive a lump sum payout from a whole of life insurance policy and you use it to invest in a taxable investment, such as a rental property, you may have to pay tax on any income or capital gains you earn from that investment. Similarly, if you receive a regular income from a whole of life insurance policy, such as an annuity, that income may be subject to income tax.
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