What is Relevant Life Insurance?
Relevant Life Insurance is a type of business protection that provides small business owners and their employees with a cost and tax-efficient death-in-service benefit. Unlike personal life insurance, relevant life policies are paid for by the company, not the individual. Similarly to a personal policy though, the benefit, or cash lump sum, is still paid to the individual’s beneficiaries in the event of their death.
Common names for Relevant Life Insurance
People refer to Relevant Life Insurance in a number of ways and typically all of the following means the same thing:
- Relevant Life Insurance
- Relevant Life Cover
- Director’s Life Insurance
- Business Life Insurance
- Contractor Life Insurance
How much can a company director save?
A significant proportion of estates passed on when someone dies contain an insurance policy, with the UK Government’s statistics putting it at over 25% for the years 2017-18. If you’re a company director and you’re currently paying for your life insurance personally from your income, you could save money by having your business pay for the cover instead.
Broadly speaking, a basic rate taxpayer currently paying £100 a month for their personal policy could save 31.5% every month by switching to a Relevant Life Insurance policy, with those in the higher rate brackets able to save even more.
What are the benefits for employees?
Relevant life insurance can be used is an attractive death-in-service perk for employees of small companies, and best of all, it’s typically not treated as a taxable benefit in kind. Offering this type of benefit to employees can often be a deciding factor when looking to recruit and retain the best.
What are the benefits to high earners?
High earners with substantial pension pots can also often benefit from a Relevant Life Cover policy. Because standard death-in-service benefits are generally classed as being a pension benefit for tax purposes (and are added to an employee’s lifetime allowance), a death-in-service payout (which is a multiple of the employee’s salary) could easily tip a person’s pension over the lifetime allowance (currently £1,073,100 as of April 21) and would trigger a 55% penalty tax on any excess.
Relevant Life Insurance doesn’t contribute to an individual’s pension lifetime allowance, meaning that high earners can often avoid paying the aforementioned 55% tax.
What are the benefits to estates?
Relevant Life Insurance policies are almost always set up alongside a relevant life trust for the beneficiaries, with many insurers making this a prerequisite when taking out a policy. By writing the benefit into trust, the payout doesn’t become part of the deceased estate which side steps both inheritance tax and probate, reducing both time and cost.
The fact that Relevant Life Insurance policies written into trust tend to reach the beneficiaries fairly quickly means that the proceeds can even be used to solve inheritance tax headaches like paying the bill when it falls due.
Relevant Life Insurance is designed for small businesses
Relevant Life Insurance was specifically introduced to provide small businesses with a form of life cover that is comparable to that which is available to larger companies. While big firms have the option of group policies, smaller businesses with less than five employees don’t have access to this market. The great thing about Relevant Life Insurance is that even companies with a single director and no employees can take out a policy, making it attractive to contractors and small business owners alike.
How to find out more
We always recommend speaking with an independent adviser before making a decision when it comes to any form of insurance and it is especially important with Relevant Life Insurance. You need to make sure that the policy is set up in the correct way to ensure you receive the tax advantages we’ve mentioned in this article. Not only that, you’ll want to compare all of the providers to make sure you’re getting the best coverage and price for your policy.
About Business Protection Hub
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