Why misconceptions about protection could leave some estates exposed

Protection planning can sometimes be deferred by high-net-worth and ultra-high-net-worth clients, particularly where the immediate focus is on investment, estate planning and tax efficiency.

In some cases, this is also influenced by misconceptions about the role of insurance and whether claims are paid.

The evidence is clear that the vast majority of protection claims are paid. The Association of British Insurers has reported claims payment rates of up to 97.9%, while Royal London paid a record £821 million in protection claims during 2025.

Despite this, declined claims tend to attract greater attention than those which are paid successfully. This can create a distorted perception of how protection operates in practice.

Where claims are declined, there are usually specific reasons. These can include non-disclosure or misrepresentation, policy exclusions or premiums not being maintained.

This underlines the importance of careful advice, underwriting and ongoing policy management.

Why this matters for UHNW clients

For clients with more complex financial affairs, protection can play an important role in ensuring that liabilities can be met without disrupting wider estate or succession plans.

This is particularly relevant in relation to inheritance tax.

Life insurance does not reduce an IHT liability. However, when appropriately structured, it can provide liquidity at the point it is needed.

In many cases, inheritance tax must be paid before probate can be granted. Executors may therefore face a tax liability before they have unrestricted access to the assets within the estate.

For estates containing property, businesses or other illiquid assets, this can create practical difficulties and in some circumstances, lead to assets being sold at an inappropriate time.

Appropriately structured protection can provide an alternative source of liquidity.

Structure is as important as the policy itself

The way a policy is arranged is fundamental.

Where appropriate, a life policy may be written in trust so that the proceeds fall outside the estate for inheritance tax purposes and can be paid directly to the trustees.

The trustees can then use those proceeds in accordance with the terms of the trust, including providing funds to help meet an inheritance tax liability.

Without the appropriate structure, the proceeds may instead form part of the estate and potentially increase its value for inheritance tax purposes.

Protection should evolve with the wider plan

Protection arrangements should not be considered in isolation or established and then left indefinitely.

Changes in asset values, family circumstances, business interests and tax legislation can all alter the level of financial exposure.

The proposed inclusion of most unused pension funds within estates for inheritance tax purposes from April 2027 is one example. For some clients, this could materially change the amount of liquidity their estate may require.

Existing protection should therefore be reviewed alongside wider estate and succession planning to ensure that it continues to serve its intended purpose.

For advisers, the key point is not simply whether a client has life insurance in place. It is whether the arrangement remains appropriate, correctly structured and sufficient for the risks it was designed to address.

Get in touch

At John Lamb Hill Oldridge, we advise high-net-worth and ultra-high-net-worth clients on complex protection arrangements, working alongside their existing professional advisers where appropriate.

If you would like to discuss how we can support you or your clients, please contact us at mail@jlho.co.uk or on 020 7633 2222.

Please note

This article is for general information only and does not constitute advice.

All information is correct at the time of writing and is subject to change. The Financial Conduct Authority does not regulate estate planning, trusts or tax planning.

Financial protection plans typically have no cash-in value at any time and cover will cease at the end of the term. If premiums stop, cover will lapse.

Cover is subject to terms and conditions and may include exclusions. Definitions of illnesses vary between providers and will be set out in the relevant policy documentation.