My father is a healthy 80 year old widower - my mother passed 8 years ago, and my father inherited everything including a a part used SIPP valued at £600k. He has an estate value which is significantly over the £1M nil rate band and will face an inheritance tax bill approaching £300k on death after April 2027 (ie. the SIPP tax change when they become part of your estate). Of course there may be some care home costs to come, but with his current expenditure levels (he has state and other widows pensions approximating £30k per year) he is unlikely to make much of a dip in things. I suspect his estate will continue to grow (ISAs and SIPPs invested) before he dies and the inheritance tax bill will continue to go up.

My father seems convinced (fixated now almost) in taking out a whole of life policy that he has been accepted for - its has been recommended by his financial advisor to cover his potential IHT liability - this FA currently looks after all of his invested cash. The WOL policy will cover him on a guaranteed premium basis paying out £300k on death into trust.

I am nervous about the recommendation by the FA, partly because I just thoroughly disagree with WOL policies generally - why insure against IHT when you can tackle it a source by gifting/spending or things like Business Property Relief investments etc etc. My father has said that he does not wish to gift anything out of his estate. I have tried to show him the benefits of surplus income gifting from his SIPP, but he wishes to take the advice of his FA. Note the WOL has not yet been started, he is considering and thinking through things further in the next few weeks, with my sister and I.

I am slightly frustrated with the FA as they have a conflict of interest and clearly are biased in my view towards a WOL policy - they will gain a significant commission payment if the policy is started. And things like gifting and spending will only lower their current income levels in managing his investments, so why would they recommend them?

What do people think of WOLs to cover IHT liability? - if my father lives for a further 10 years, which I think he is highly likely to do, we will lose out in terms of total premiums paid in exceeding the policy pay-out. Of course if he dies within the next 5 years it will be a good decision, but I think my father will live a longer and healthy life for a long time yet.

One observation, you say that you don't think care home costs would be a significant hit. That's true in most cases but not always, some people do spend many years in a care home and it can cost getting on for £100k a year, so money can evaporate very quickly! Of course, the government is supposed to be bringing forward proposals to cap the costs - but so did previous governments ...

On the main question, I'm not really sure what the point of the WOL insurance is supposed to be vs just paying the IHT from the estate - even if there's a disinclination to pay tax this path still involves paying it, just via what may turn out to be a very expensive insurance policy.

I have been looking at term insurance policies to cover gifts which rank as Potentially Exempt Transfers (PETs). I gifted £300K to my son in September 2024, and am 75 years old. The potential IHT on this gift would be £120K.

Whole of Life policies are very expensive (as they are life assurance policies) as opposed to term insurance: a 7-year term insurance I have looked into with L & G is £152 per month for a guaranteed sum of £120K, so, that works out at about 10% of the sum insured.
Not cheap, but much more reasonable than a WoL policy.

If your father is insistent on going the life insurance route, perhaps you can convince him to take a term insurance?
£300K insurance for an 80 year old should be about £450 - £460 per month, and doing that might calm his nerves about IHT.

Thank you - some interesting food for thought.

Whichever way I think this through - its my father's decision - I certainly dont want to come across as coercive. Its just frustrating that he really doesnt understand things, and thinks that the FA speaks gospel, and must be 100% correct. I am trying to convince on getting a second opinion with someone completely independent. Independent advice is so crucial...

I can see the point of what D Bergman is doing (i.e. protect the beneficiary from receiving a large bill out of the blue) but the situation you are describing seems to be just a bit of compo for you (i.e. to simply make up for what HMRC will take from the estate). It's not as if the WOL payout can be used as a liquid asset within the estate to actually pay IHT and thereby accelerate probate (correct me if I'm wrong).
It just sounds like a bet on how long he lives, in which case the insured amount can be anything you want.
What am I missing?!