If you’re a business owner and would like to protect your family with life insurance (or are currently paying for life insurance cover out of your taxed income), then a Relevant Life policy is something you should be considering.
Relevant Life explained
Relevant Life is a term insurance policy available to employers to provide an individual tailored death in service benefit for any employee. It’s designed to provide life insurance in a tax efficient way for the employer, employee and the employee’s beneficiaries. This includes salaried partners/directors and salaried single directors of a limited company. As long as you’re between the ages of 18 and 73 you can qualify for this valuable company paid benefit. Limited companies and limited liability partnerships can take out a policy in the name of the business. For partnerships, all of the partners would jointly apply for the policy on the life of the employee. For sole traders, the business owner would apply for the policy on the life of the employee.
How does it work?
As long as the arrangement is not funded through salary sacrifice, the premiums should be treated as an allowance expense for the business and as the premiums will not usually be a taxable benefit for the employee, the employee will not pay income tax on the value of the premiums and the employee/employer will not have to pay National Insurance contributions on the value of the premiums. Any policy proceeds will usually be paid free of income tax and capital gains tax. As the policy is held under trust, the policy proceeds should not be treated as part of the employee’s estate for inheritance tax purposes.
If the employee covered leaves their employment, the policy can in many cases continue to qualify as a relevant life policy if the policy is transferred to the employee’s new employer, who must also arrange to take over the premium payments. This must normally be completed within 90 days of the life covered leaving their previous employer. The old employer would retire as trustee and the new employer can be appointed as a new trustee. If the Relevant Life Insurance policy is not transferred to a new employer, the employee can usually take advantage of a “continuation benefit” to take out a new policy with the insurer for life cover only. The life cover policy conditions in force at the time will apply to the new policy. They can usually do this without answering any further health and lifestyle questions, provided they do so within 90 days of leaving their employment.
Is your insurance up to the job?
Speak to our Financial Services team today to discuss if a Relevant Life policy might be right for you.