What does gift inter vivos insurance ensure regarding inheritance tax?

Gift inter vivos insurance, also known as life insurance taken out to cover potential inheritance tax (IHT) liabilities, specifically addresses the tax implications arising from gifts made during a person's lifetime. When a gift is made, it may be classified as a potentially exempt transfer (PET). If the donor dies within seven years of making the gift, the value of that gift may be subject to IHT.

Thus, gift inter vivos insurance ensures that the sum assured provided by the policy is enough to cover any inheritance tax that may become payable on those PETs. This aligns the policy benefit with the potential tax liability, offering a financial safety net for heirs and helping to preserve the value of the estate they inherit.

The other choices do not pertain directly to the central function of gift inter vivos insurance in relation to inheritance tax. The focus on covering specific tax liabilities through a sum assured that corresponds to potential taxes on gifts sets the correct answer apart as it directly fulfills the purpose of the policy.