Relevant life insurance
If you own a business, there’s a smarter way to buy life cover for yourself and your key employees
Relevant life Insurance is an individual death in service policy that allows an employer to provide tax efficient life cover for employees.
A relevant life policy pays out a tax-free lump sum if your employee:
- dies during the policy term. or
- is diagnosed with a terminal illness during the policy term
The main purpose is to give financial protection to your employees, spouses, partner or dependants.
Who might want to take out Relevant Life Cover ?
- small businesses – wanting to offer life insurance to their key people
- high-earning employees – who may exceed their personal pension lifetime allowance.Registered group life schemes are included in pension legislation, meaning any proceeds are added to the employees pension fund and may cause them to exceed their
maximum lifetime allowance.
- members of group life schemes – who want to top up their benefits.
Some group life schemes are restrictive.
Unlike Group Schemes, HM Revenue and Customs consider the payment of premiums to be a business expense (so you don’t have to pay national insurance contributions)
You can choose:
– the amount of cover
– the term
– whether the cover is level or inflation-linked
This will then be written in Trust, meaning that if the employee dies, the claim is paid free from Inheritance tax, to their beneficiaries.
Relevant life cover is arranged on an individual basis with the company as the policy owner, and the employee as the person insured and is only available to salaried employees who permanently live in the UK.
The aim is to provide a tax efficient benefit provided by an employer for an employee. There are a number of advantages to arranging relevant life insurance including:
- The policy premiums paid for by the business are not normally assessable on the employee as a benefit in kind so they are not subject to income tax. This means for a higher-rate taxpayer, the company director could make a saving of up to 49% by paying for their personal insurance via a relevant life plan.
- For a basic rate tax payer, the saving is still significant at around 36%.
- The policy premiums paid for by the business are not normally assessable for employer or employee National Insurance contributions.
The policy premiums may also be treated as an allowable expense for the employer in calculating their tax liability provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.
A saving of nearly 50%
|Life policy||Relevant life policy|
NI at 2%
|Income tax at 40%
NI at 13.8%
|Corporation tax at 19%||-£373||-£190|
Life and/or Critical illness cover
At the time of loss, the last thing a family needs is additional anxiety as a result of financial worries. If money issues arise, all the things that used to make life special with your loved ones, could be threatened for years to come.
For the price of 4 coffees each month, you could get over £26,000 of Life or Critical Illness cover.
So cutting back could be the pick-me-up your whole family needs when times are difficult.