While life cover is an essential aspect of financial planning, the options available to you can appear limited; either opt for your own individual insurance plan or enrol in group life insurance…but only if, of course, your business is large enough.
So, what about Relevant Life Cover?
Designed as insurance for employees in case of death in service, this cover will pay a lump sum of money after death or diagnosis of a terminal illness, while enabling employers to pay into their plan through their work.
Relatively few know about this scheme, yet Relevant Life Cover offers a far more cost-effective type of life insurance that is tax-deductible within your business.
Why use Relevant Life Cover?
While the uptake of this kind of policy is small, a vast number of businesses could stand to save from benefits that include:
- The ability to pay for life insurance through your business
- Tax savings for both employers and employees
- A reduction in corporation tax, personal tax demands and NI contributions
- A more attractive benefits package for employees
- Less restrictions than group life schemes
- No need for P11D disclosures
- Cheaper than standard life insurance
What makes it tax-efficient?
Small businesses don’t have enough employees to offer a group life insurance scheme, which means they end up missing out on some of the tax-efficient savings up for grabs.
Relevant Life Cover tackles this issue, by enabling smaller businesses to offer life insurance for individuals, while taking advantage of the tax savings that larger companies have access to.
How does it work? Relevant Life Cover payments are treated as an allowable expense for taxation purposes, meaning that they won’t be treated as further income or benefits-in-kind. As a result, Relevant Life Cover through your business is free of income tax, capital gains tax and national insurance.
Who stands to benefit?
More people than you might think! If you come under any of the following groups, you could be benefitting from Relevant Life Cover:
- Small businesses that aren’t big enough to offer a group life scheme
- High-earning individuals that might exceed their personal pension lifetime allowance (relevant life cover payments don’t count towards your lifetime allowance)
- Group life scheme members that want to top up their benefits
- Directors wishing to provide their own individual ‘death in service’ cover without taking out a scheme on all employees (this particularly affects small firms that are reliant on the skills of the owner to provide for the family).
So, what’s the catch?
There are restrictions on the maximum level of cover possible for Relevant Life Policies, but in truth these are fairly generous. Most insurers will apply a maximum of 20x remuneration for those aged under 40, and a maximum of 15x remuneration for those above.
What does this mean in costs to you? Typically, for a non-smoker aged 40 working in a relatively low-risk occupation, you could expect to pay premiums of less than £100 per month for the provision of £1m life cover to age 65.
To find out more about how your business could benefit from Relevant Life Cover, get in touch with us at Chippendale and Clark for some friendly, no-obligation advice with our financial partner.