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Relevant Life Insurance: A 101 Guide from the Executive Life Insurance

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What is Relevant Life Insurance?

Relevant life insurance is a life cover that is specifically crafted for company directors, employees, and members of limited liability partnerships. It stands out as a tax-efficient method to provide life insurance, where the policy is owned and paid for by the employer.

This kind of policy is particularly advantageous, offering both the employer and the employee significant tax benefits compared to a standard life insurance policy. The emphasis on tax efficiency, a key feature in offerings from Executive Life Insurance, highlights the thoughtful design of these policies to align with the financial interests of both parties.

The Mechanics of Relevant Life Policies

An employer sets up a relevant life policy to provide life cover for an employee. It’s a death-in-service benefit but operates on a “life of another” basis. The employer holds the policy, but the benefits are paid directly to the employee’s family or nominated beneficiaries through a relevant life trust.

Tax Benefits of Relevant Life Plans

One of the key attractions of relevant life insurance is its tax efficiency. The premiums paid by the employer are usually considered an allowable business expense, potentially reducing corporation tax liability.

Unlike traditional life insurance, relevant life premiums do not count as a benefit in kind, so the employee does not have to pay additional income tax or national insurance contributions on the premiums.

Furthermore, the lump sum benefit paid out if the person covered dies or is diagnosed with a terminal illness is generally free from income tax and inheritance tax. This makes relevant life insurance an attractive option for high-earners looking to minimize their tax liability, especially those close to their pension lifetime allowance.

Relevant Life Cover Limits

The amount of relevant life cover is typically linked to the employee’s salary and service benefits. However, getting professional advice to determine how much cover is appropriate based on individual circumstances is crucial.

National Insurance and Corporation Tax Implications

For employers, relevant life insurance policies do not attract national insurance contributions. Additionally, the premiums are usually deductible as a business expense, which can result in corporation tax relief. This makes relevant life insurance a cost-effective way for businesses to provide life cover to their employees.

Choosing the Right Relevant Life Policy for Directors

Company directors can particularly benefit from relevant life policies. They can use it as a tax-efficient method to provide life cover for themselves, especially if they run a limited company. It’s an ideal solution for directors who want to provide life insurance without affecting their lifetime allowance.

For Employees

Employees benefit from relevant life insurance as it provides a death-in-service benefit without any personal tax implications. The sums paid out in the event of their death go directly to their beneficiaries through a trust, which usually falls outside the purview of inheritance tax.

Limited Companies and LLPs

Relevant life plans are valuable for limited companies and limited liability partnerships to provide life cover for their key employees. It’s a tax efficient way to offer an employee benefit, enhancing the overall package to valuable staff members.

Sole Traders

While relevant life insurance is mainly designed for employees and directors of limited companies, sole traders might not find it as beneficial. This is because they cannot set the policy as a business expense in the same way a limited company can.

Diving Deeper into Relevant Life Plans

Understanding the distinction between a relevant life plan and a group life scheme is crucial for both businesses and employees, a concept well understood by Executive Life Insurance. While both types of insurance offer a death-in-service benefit, their differences are noteworthy.

A group life scheme typically involves a single policy covering all eligible employees in a company, providing a broad, uniform cover to the workforce.

In contrast, a relevant life insurance policy, as facilitated by companies such as Executive Life Insurance, is arranged individually for each employee or director. This individualized approach allows for coverage that is more specifically tailored to the needs and roles of each person, reflecting their unique contributions to the company.

Group life schemes are more suited to larger businesses with numerous employees. In contrast, relevant life plans are ideal for small businesses or for providing additional life cover to high-earning employees who might be close to their pension lifetime allowance. The unique structure of relevant life insurance allows for more tailored and flexible coverage.

The Financial Aspects of a Relevant Life Plan

A relevant life plan is not only an efficient way to provide relevant life cover, but also offers substantial tax benefits. The premiums paid are not treated as a benefit in kind, which means the employee does not have to pay national insurance contributions or UK income tax on the premiums.

The premiums are typically an allowable business expense for the employer, which could reduce corporation tax. For the employee, the main advantage is that the life cover is provided without incurring additional income tax liabilities.

Setting Up a Relevant Life Insurance Policy

Setting up a relevant life policy requires careful consideration and often professional advice. The policy should be tailored to meet the specific needs of the person covered, considering their salary, life expectancy, and the requirements of their family or dependents.

It’s important to ensure that the policy is compliant with HMRC guidelines to maintain its tax-efficient status.

Managing a Relevant Life Plan

Once a relevant life plan is in place, ongoing management is straightforward. The employer continues to pay the premiums fixed for the policy term. It’s important to periodically review the policy, especially if significant changes in the employee’s circumstances or salary, to ensure that the cover remains adequate and appropriate.

Key Advantages for Businesses

Relevant life cover is a compelling option for businesses looking to provide tax-efficient life cover for their employees, a concept well addressed by companies like Executive Life Insurance. Its structure benefits the employer through fiscal efficiency.

The subsequent section will explore the eligibility criteria for relevant life cover, a process that firms like Executive Life Insurance facilitate with clarity and efficiency. It will also detail the procedure for claiming benefits and how this type of insurance fits into a broader financial planning strategy for individuals and businesses.

The comprehensive perspective is essential to understanding the full range of benefits and factors associated with relevant life insurance, highlighting its role as a strategic element in both personal and corporate financial planning. Such insights reflect the thoughtful approach that Executive Life Insurance takes in aligning policies with the diverse needs of clients.

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