Can life insurance pay your family's inheritance tax bill?

The problem: a bill that arrives before the money does

Inheritance tax is charged on your beneficiaries at 33% above their lifetime thresholds — €400,000 for a child inheriting from a parent — and the payment clock is unforgiving: tax on benefits with valuation dates up to 31 August is due, with the return, by 31 October of the same year. The interval between a death and that deadline is often under a year. The assets, meanwhile, are typically a house and perhaps a business — real wealth, but not cash. That compression, not the tax rate, is the problem families actually experience: a six-figure bill due in months, secured on things nobody wants to sell in a hurry.

Why ordinary cover can't fix it alone

The instinctive answer — take out life cover and leave it to the children — runs into the guide's most instructive trap: cover left to the same beneficiaries is *itself part of their inheritance*, taxed before it ever reaches the bill. In the guide's central case, €400,000 of ordinary cover left to two children alongside a large estate would lose €132,000 of itself to the very tax it was meant to pay; matching the liability that way needs roughly €591,000 of cover, and premiums to match.

Section 72: the exemption built for the bill

Section 72 of the Capital Acquisitions Tax Consolidation Act solves the circularity directly: the proceeds of a qualifying policy are exempt from inheritance tax to the extent they are applied in paying the inheritance tax arising on the insured's death. The estate's tax is paid with money that is not itself taxed — the entire point of the wrapper.

The conditions are strict, statutory and all set at the outset: the policy must be in a Revenue-approved form, it must be expressly effected under the section from day one — an ordinary policy cannot be converted later — annual premiums must be paid by the insured, and the sum assured must be at least eight times the annual premium. Whole of life is the natural shape, since the insured event must be capable of happening whenever death occurs, and spouses commonly write a single joint-life policy paying on the second death, which is when the liability actually crystallises. Two refinements make the section more valuable than most people realise: "relevant tax" includes the substantial tax charge that arises when ARF pension funds pass on death, so one policy can be sized to fund both; and the exempt proceeds do not consume the beneficiaries' own thresholds — paying a child's tax this way leaves their €400,000 fully intact for the estate itself.

The honest arithmetic

Our guide runs the numbers rather than asserting them. A married couple, both 60, with a €2,000,000 estate passing on the second death to two children face a combined bill of €396,000. A €400,000 joint-life second-death Section 72 policy at an illustrative €6,000 a year funds it in full and exempt; to a joint life expectancy around age 90, total premiums come to roughly €180,000 — about €2.20 of tax funded per euro of premium. And the "losing" scenarios are the ones where the couple live far beyond expectancy — the scenarios families mind least.

The same honesty covers who *doesn't* need it: estates fully sheltered by the spouse exemption, reliefs and thresholds; beneficiaries with ample cash of their own; and anyone for whom the premium is only affordable on a reviewable basis they may not sustain into old age — because a lapsed Section 72 policy at 85 is the worst outcome available. Which leads to the three rules.

Three rules that keep the wrapper working

Choose guaranteed premiums where at all possible: a reviewable contract whose reviews become unaffordable in your eighties delivers decades of premiums and no cover. Never casually "switch" a Section 72 policy: the designation attaches to the contract, so replacing it means surrendering the exemption and starting again at an older age — one of the few places in Irish protection where switching carries real tax consequences. And review the sizing at every Budget: a liability measured in 2026 will not match the estate of 2046 without indexation and periodic checks.

A smaller trick from the same toolbox

Not every inheritance tax problem needs a Section 72 policy. The guide's grandparent case study shows the small gift exemption doing elegant work: a granddaughter owns a €150,000 policy on her grandmother's life and pays the €2,600 premium herself, funded by the grandmother's annual tax-free gift of €3,000. At claim, the granddaughter collects her own property — no inheritance at all — where a €150,000 legacy would have cost €36,300 in tax. Configuration, funded by an exemption anyone can use, at no tax cost whatsoever.

The bottom line

Inheritance tax is the one certainty in estate planning with a published due date — and the tax code itself provides the instrument for meeting it. Whether a Section 72 policy earns its premium is a question of your estate, your beneficiaries and your thresholds, which is precisely the computation to run with an adviser and a tax professional before buying. The guide provides every working; the conversation costs nothing.