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3 Ways You Can Leave Your Child £150,000 Inheritance

Do you want to leave a cash inheritance? Did you know that leaving a cash inheritance is no longer something that only ‘rich people’ get to do?  Now anyone is able to do it; all it takes is a little bit of time and forward planning.

So if you like the idea of leaving your child £150,000 inheritance but don’t think it’s possible, this article is for you. Let me show you the 3 ways you can leave your child £150,000 inheritance starting today.

3 Ways to Leave a Cash Inheritance

Ok, let’s jump in and show you how it can be done starting with…

Route #1: Invest £58 a month

To make this work you’ll need to open a savings vehicle – ideally a stocks and shares ISA. Because it’s an ISA the investment will be able to grow without the taxman getting his hands on any of your hard earned cash. Also stocks and shares investments are arguably the best way to grow your cash over the long term.

Here’s a screen shot the figures involved courtesy of themotleyfool.co.uk.

leave a cash inheritance

 

Route #2: Invest £13,150 today and watch it grow

Another option is to invest a lump sum into a stocks and shares ISA and let it grow tax free. Of course you’d need to have £13,150 available to invest, but if you didn’t then this is how it’d work out for you.

Again here’s a screen shot of the figures courtesy of the themotleyfool.co.uk.

leave a cash inheritance

In order to make these 2 comparisons as simple and as easy to replicate as possible, I needed to make 2 assumptions:

  • Assumption #1: you live for at least another 50 years.
  • Assumption #2: you achieve a realistic 5% average rate of return.

Route #3: Buy a whole of life insurance policy

Setting up a whole of life insurance policy is another way to leave your child £150,000.

A word of warning. It has to be a whole of life insurance policy to make this possible because a term insurance policy cannot (and will likely not) guarantee a payout as you would need to die during the policy term for it to pay.

Here’s a comparison of what this would cost with 8 different well-known insurers for a non-smoker age 35:

Comparison: £150,000 Whole of Life Insurance for a non-smoker age 35

Insurer Cover Amount Monthly Premium
LV £150,000 £65.67
Scottish widows £150,000 £68.32
Zurich £150,000 £71.55
AIG £150,000 £72.33
Aegon £150,000 £83.07
Vitality £150,000 £84.58
Royal London £150,000 £88.07
Legal & General £150,000 £135.05
Note: Non-smoker rates correct as of May 2016. Fixed premiums.

So which one should you implement today to start creating the £150,000 inheritance?

Unless you have a spare £13,150 lying around number 2 isn’t (yet) possible – this leaves routes #1 and #3.

So looking at the comparison above LV would be the cheapest fixed quote for a 35 year old, and this would get you that £150,000 inheritance for your child.

Remember that these quotes are for someone age 35.  Insurance prices vary depending on your age. In our LV example, the premium for someone age 30 would be £10 less at £54.83 a month.

So if you’re going to buy an insurance like this, there is an added incentive to avoid the higher premium and not to wait until after your next birthday.

“…if you’re age 30 the premium would be around £10 a month less.”

So Which Option Is the Best for You?

There’s no right or wrong answer, it really depends on your personal objectives. Value for money is always an important consideration, and if you’re anything like me then you’ll want to take a close look at this.

One of my favourite ways to look at the value for money of an insurance like this is to have work out what you could actually end up paying in.

So let’s take a closer look at this.

Compare Value for Money

Route #1 – Invest £58 a month

This assumes the rate of return on your £58 a month is 5% compounded and because it’s held in an ISA no tax would be deducted.

In our scenario the amount you’d actually have paid into the ISA would be £34,800 (£58 x 12 months x 50) but due to the amazing affects of compound interest that £34,800 will grow to £150,000!

Pretty amazing don’t you think?

Route #3 – Whole of life insurance

Similarly with the Whole of Life Insurance option you’d have paid in £39,402 in premiums (£65.67 x 12 months x 50) but your child would get £150,000.

This is £110,598 more than what you’d have paid in!

Additionally with the insurance you don’t need to worry about what the stock market is doing because the insurer has taken that risk and affectively allocated this guaranteed pot of money. All you need to do is maintain the premiums.

Again, quite remarkable value for money!

Ok this all sounds very good but there’s always a catch, right?

Of course there are pro’s and con’s to each of these routes, so let’s take a look at these in a bit more detail starting with…

Pro’s of monthly savings

🙂 The savings option is quick and simple to set up.

🙂 It could be cashed in at any time if cash is needed in future. (Although this could be viewed as a downside?!)

🙂 Growth would be tax free if held in an ISA.

Con’s of the Monthly Savings option

🙁 The rate of return could be higher or lower than 5% over time.

🙁 Would require 50 years of growth (assuming 5%) to get to the £150k target.

🙁 Requires discipline as it could be cashed in at any time.

🙁 Requires a time and patience.

Now let’s look at the pro’s and con’s of the Whole of Life Insurance option…

Pro’s of Whole of Life Insurance option

🙂 Can be written in Trust making the £150,000 free of inheritance tax.

🙂 Guaranteed to pay out £150,000 regardless of what age you live to.

🙂 Could protect your child and family financially from your early death.

🙂 Could protect your mortgage and family making additional life insurance an unnecessary expense.

Con’s of Whole of Life Insurance option

🙁 Subject to an application: if you’re in poor health you may not be accepted for cover.

🙁 Not an investment: if you cancel the policy you won’t get anything back.

🙁 Impossible to chose the correct policy without research or professional help.

🙁 Premiums would need to be paid for the rest of your life.

To get that £150,000 inheritance you would of course need to die (I know, I know) but in this life there’s 100% chance of death, so the way I see it is; we can either choose to ignore it, or embrace it and plan ahead for the sake of our kids.

So as you can see out of savings and insurance there are very different advantages to each.

My Preferred Option to £150,000 Inheritance

Taking up both options would be a perfectly sensible and viable way of leaving your child something.

Although it has to be said that both the insurance route and the savings route each have their merits.

If I were to be hit by a bus tomorrow I wouldn’t have had the chance to save anything near that £150,000 target.

So for me having the life cover in place means added peace of mind, because once you take out the policy you’re covered from day 1 against death for the full amount.

So for me, it does TWO things:

  1. Protecting my children while they are still young and dependent on me.
  2. If I don’t die early (!?), this policy isn’t a waste of money, I would just continue running it to serve it’s second purpose – as a vehicle for my son’s legacy creation.

The Biggest Drawback

It is a daunting thought that in order to guarantee the payout for your child, you need to pay it for the rest of your life.

I agree that’s not ideal.  But this is the way I see it.

In our final years we may need care. Maybe professional care or maybe our kids would need to care for us themselves.

This policy could affectively pay them back.

This policy could replace any saving they’ve had to use for taking care of us.

This policy could help make things financially easier for them after we’re gone.

This policy could even be paid by them if we weren’t able to!

“In our final years we may need care. Maybe professional care or maybe our kids would need to care for us themselves.”

If they’re looking at a significant payout, it’d be in their own interests to make sure it’s paid, and all things considered taking on a small £65 premium is unlikely to be a problem for them.

But what if you lived way longer than 50 years?

What if you were the kind of person who looked after your health, exercised regularly and lived a very long life.

Quite simply you’d end up paying in more.

That’s a fact.

You’d end up paying more monthly premiums than someone else who didn’t care about looking after their health and died earlier.

I know it’s a strange thought but we’re all different so why should we subsidise other peoples unhealthy choices?

Ok here’s the good news.

I’ve found a way of getting around this fact and not having to worry about the unfairness of having the same payment as someone else who doesn’t care for their health and as a result they lived a shorter life.

How to save 67% off your premiums

Next time I’ll be telling you a way you can pay up to 67% less for your whole of life insurance – but it does come with one big ‘catch’…

You need to engage in activities like walking and exercising that may prolong your life!

So if you’d rather sit and watch your favorite soap on the TV than work up a sweat around the park, this won’t be the option for you.

But if you do like to keep active I know you’ll love what I’ve found.

Until next time.

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