What is Relevant Life Cover?
A relevant life plan is insurance for an employee in case of death in service. It’s a plan paid into by the employer, which is designed to pay a lump sum if the employee dies or is diagnosed with a terminal illness.
Who should consider these policies?
- Directors wishing to provide their own individual “death in service” benefits with-out taking out the scheme for all employees
- High-earning employees where “death in service” does not form part of their “life-time allowance”
When are relevant life plans not suitable?
- Relevant life plans are not available where there isn’t an employer-to-employee relationship. For example: sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.
Who should be covered by relevant life policies?
The majority of company directors have some personal life insurance. Ut nearly all of these are paying for their life insurance either personally through pre-taxed income or though their company and getting a P11D benefit-in-kind penalty for this. Up until recent years, getting the limited company to pay for personal life insurance was only possible for companies that took group life insurance, often these types of policies were only possible for companies wishing to insure 10 or more employees.
What are the savings?
Relevant life plans are similar to most other types of life cover except they aim to provide a tax-efficient benefit provided by an employer for an employee.
This means that for a higher-rate taxpayer, the company director can save 49 per cent by paying for the personal life insurance via relevant life plan. For a basic-rate taxpayer the saving is still significant at around 36 per cent. The problem is that most company directors and even accountants have never heard of the plan. Therefore, the uptake of the policy is very small compared to the number of people who could benefit and save.
How much cover can you have?
Like traditional death in service policy, the sum assured with a relevant life policy is also based on a multiple of remuneration. For a company director the definition of remuneration is based on salary plus dividends plus bonuses etc. The multiples vary from provider to provider and depend on the age of the director being insured. These range from 10 times remuneration to 25 times remuneration.
Speak to us today to discuss how your business could benefit from a relevant life policy.
