What is relevant life insurance and should you have it?
What is relevant life insurance?
Many small business owners would love to offer their employees or directors financial perks such as life insurance. Unfortunately, setting up a group scheme can be expensive, especially if there are not many staff.
There is an alternative in the form of a relevant life policy.
Relevant life cover is a form of death-in-service benefit that is set up and paid for by a company but pays out to a staff member’s or director’s beneficiaries on death.
It is typically used by businesses that aren’t big enough to establish a group life scheme but want to provide a perk for their directors and staff.
Relevant life insurance can also be helpful for high earning directors and staff who have made use of their pension lifetime allowance as a traditional group life scheme would count towards their retirement savings.
How does relevant life insurance work?
Similar to a traditional life insurance policy, an individual is assessed based on how much cover is required, their health, age and lifestyle.
The amount you request may be determined by your mortgage costs, salary and other elements such as your personal bills.
This then generates a premium but rather than the individual paying the policy, the business does.
If the insured person dies while working for the company a tax-free payout will be made to their beneficiaries, which is typically their family members.
Policies can be taken out for employees as a benefit as well as for business owners and directors themselves.
The cover can be a useful employee perk but relevant life cover taxation is also pretty generous.
Relevant life cover can either be for a set amount, known as level, or be linked to inflation so the payout reflects the cost of living at the time it is made. This would also increase the premiums in line with inflation.
Some policies can also incorporate guaranteed increases such as to cover a larger mortgage or pay rise.
It is not treated as a benefit-in-kind so those insured don’t have to pay any income tax, while the business can treat the premiums as an expense to reduce their corporation tax bill.
Additionally, the policy is written in trust which makes the payout to beneficiaries free of inheritance tax.
Providers will set various limits on levels of cover so to boost the insurance many use it alongside death-in-service policies.
Death-in-service cover usually provides a tax-free payout of between two and four times salary if you pass away while working for the company. In contrast, a relevant life policy may offer more cover.
These types of policies may not individually provide enough cover for all your loved one’s expenses such as a mortgage or childcare so it is often worth considering topping up with your own life insurance.
Additionally, if you leave a company that was providing the death in service cover you would lose this perk but it may be possible to take charge of your own relevant life cover and pay your own premiums.
What are the benefits of relevant life insurance?
Benefits for businesses
Relevant life cover is a tax-efficient alternative to group life assurance.
A group life scheme often works out cheaper for larger groups and those businesses with just one or even no members of staff wouldn’t usually qualify.
Instead, relevant life insurance allows a company owner or director to still be able to cover themselves using their business rather than their own personal income, as well as providing the perk for employees.
It also has the benefit of reducing the firm’s corporation tax bill as can be treated as an expense.
More importantly, relevant life cover is a useful way of attracting and retaining staff as it shows you value their contribution and care for their wider family.
Benefits for employees
Relevant life policy is also useful for employees. It gives them life insurance without having to pay any premiums, although depending on the level of cover it may still be worth having their own additional policy.
Relevant life cover is also beneficial for high earners as an alternative to joining a group life scheme. This is because group life schemes count towards the annual pension lifetime allowance, which is £1.03m in the 2018/2019 tax year. Any payouts under a group life scheme would fall under the allowance, risking a hefty tax bill when they access their pension, so instead a high-earner could have relevant life cover, which doesn’t count towards the pensions allowance.
Ultimately relevant life insurance gives you reassurance that your beneficiaries will be looked after with a tax-free payment, which can be used alongside other personal policies you may have set up.
How much does relevant life insurance cost?
Similar to a life insurance policy, the cost of relevant life cover will depend on the insured individual’s age, lifestyle, health and how much cover is provided.
It is worth shopping around, using the online relevant life insurance comparison tool below, as providers will offer various levels of cover with different terms depending on the type of policy you want.
A life insurance broker can help you find the most suitable relevant life cover provider.
Compare relevant life insurance
Different insurance companies will offer a variety of rates and levels of cover so it is important to compare relevant life insurance policies and costs.
It is advisable to speak to a competent life insurance broker to find the most suitable policy (or combination of policies) for you and your business. I have personally vetted the services of a specialist insurance broker, which recommended and put in place insurance policies to protect my business (MoneytotheMasses) and its employees. It has specialist advisers that deal with relevant life insurance. To arrange a free chat just fill in the form via the above link. There is no obligation on your part to take matters further. The firm has strong ethics but also enjoys preferential prices from insurance companies which means that it can guarantee to beat any relevant life quote.
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most of your money.
Simply find your nearest qualified and regulated adviser using the UK’s largest adviser search.