Cohabiting Couple? Protect Your Life Insurance Payout from Tax

Oct 15, 2024

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What Can You Do About It?

Get married

It might sound a bit odd to suggest this, but from a financial perspective, getting married can really make sense—especially if you’ve been in this relationship for years or have kids together.

A simple registry office wedding in Ireland typically costs €200 on the notification fees. That’s a pretty small price compared to the potential tax hit a cohabiting partner might face.

Or, if your dream is to have a big wedding celebration, the total cost typically runs around €36,000. This covers everything—from the venue and the dress to the rings and the honeymoon. Of course, this is just an average!

For example:

If you’re cohabiting and inherit €300,000, you could face a tax bill of €92,400. But if you choose to get married, a quick registry office wedding for as little as €200 could save you that entire tax bill.

Even if you’re dreaming of a bigger wedding, with the average cost being around €36,000, the potential savings in inheritance taxes are still huge.

Whether you go for a simple ceremony or a grand celebration, getting married could save you a substantial amount in taxes.

Life of another policy

A simple and effective option for cohabiting couples is to take out a “Life of Another” life insurance policy.

This means each partner takes out a policy on the other, so if one of you passes away, the surviving partner gets the payout without having to pay any inheritance tax.

For example:

Sarah and Alan, who aren’t married, each take out a life insurance policy for €300,000.

Sarah pays for Alan’s policy from her own bank account, and
Alan pays for Sarah’s policy from his own bank account.

If one of them passes away, the other will get the full €300,000 payout, tax-free, because they own the policy and paid for it themselves. This is a simple way to make sure your partner is financially protected.

Is there another way to protect my family from inheritance tax?

You can take out a “Section 72” life insurance policy, where each partner takes out a separate policy that’s specifically designed to cover inheritance tax. The great thing about Section 72 is that the payout is exempt from tax, as long as it’s used to pay off any inheritance tax owed.

This can be especially helpful if you’re concerned about potential tax bills on your home or other assets, ensuring the surviving partner isn’t faced with a significant tax burden.

You can learn more by exploring our articles on inheritance and gift tax for cohabiting couples, which provide helpful guidance on managing this part of your financial planning. You’ll also find tips on how to protect your children from large tax bills in the future.