Relevant Life Insurance
Relevant Life Insurance
Relevant Life Insurance Solutions
Employers can provide Relevant Life Insurance as a tax-efficient employee benefit, offering financial security to their staff and their families. This type of policy insures employees against death in service or the diagnosis of a terminal illness. If the worst happens, the employee's family will receive a lump sum, providing crucial financial support during difficult times.
At Bradgate Financial Solutions, we are whole-of-market insurance brokers, ensuring access to the best possible insurance options. By understanding your budget and needs, we can propose a tailored solution that aligns with your goals.
What Are the Benefits of Relevant Life Insurance for Employers?
Relevant Life Insurance offers several advantages for employers, including:
- Tax Efficiency Premiums are typically tax-deductible as a business expense, making this a cost-effective benefit.
- Recruitment Tool Offering Relevant Life Cover can help attract top talent, showing potential candidates that you care about their welfare.
- Enhanced Company Reputation Demonstrates a forward-thinking and supportive company culture, appealing to both new and existing staff.
What Are the Benefits for Employees?
For employees, Relevant Life Cover is more than just a policy—it's a reassurance that their employer values their contributions and cares for their family's future.
- Family Security Employees gain peace of mind knowing their families will be financially supported if the unthinkable happens.
- Workplace Satisfaction Including this cover in an employment package fosters loyalty and helps staff feel valued.
- Appealing to Candidates Job seekers often consider the benefits offered by a company. This type of cover enhances your recruitment appeal by showcasing a caring workplace culture.
The Tax Treatment in Detail
Relevant life cover exists because of how it is taxed, so it is worth being precise about what the treatment actually is.
Premiums
are normally an allowable business expense, provided they are incurred wholly and exclusively for the purposes of the trade. That is a judgement for the company's accountant against its own circumstances, not an automatic entitlement.
Premiums are not usually treated as a benefit in kind
so they do not appear on a P11D and the employee pays no income tax or National Insurance on them. This is the central difference from an ordinary personal policy funded out of taxed income.
The benefit is paid into a discretionary trust
and distributed to the employee's family. Written correctly, the proceeds fall outside the employee's estate for inheritance tax.
It does not count towards pension allowances
unlike older death-in-service arrangements written under pension rules — which is why it suits high earners who have already used their pension capacity.
The comparison that matters is against a personal policy funded from dividends: money leaves the company as profit, is taxed as a dividend, and then buys the cover. Relevant life cover removes both layers. For a higher-rate taxpaying director, the effective saving is substantial.
Confirm the position with your accountant. Tax treatment depends on your circumstances and can change.
Who Cannot Use It
Relevant life cover requires an employer-employee relationship. That requirement rules out several people who would benefit most from it.
Sole traders
cannot cover themselves, because there is no employer separate from the individual.
Equity partners in a partnership and members of an LLP
cannot normally be covered on their own lives either — they are proprietors rather than employees. Salaried partners and salaried LLP members are a different case and may qualify.
Shareholding directors can be covered
provided they are genuinely employed by the company and take a salary. This is the most common use of the product.
Where cover is not available, the alternative is usually a personal policy written in trust, or where the need is a business one, key person or shareholder protection instead.
Cover Limits and Age
Insurers set maximum cover as a multiple of remuneration, and the definition of remuneration is what catches directors out. Salary plus dividends is normally acceptable where the dividends reflect the individual's work in the business; investment income is not.
Multiples usually decrease with age, so the same person can secure a higher multiple at forty than at fifty-five. Policies must end by a set age, generally around seventy-five, and cannot run indefinitely.
The cover is term assurance only. It has no cash-in value at any point, and if the policy ends without a claim nothing is returned. It is protection, not an investment, and pricing it against a savings product misunderstands what it is.
Critical illness cannot be added to a relevant life policy. Where that need exists it requires a separate arrangement.
When the Employee Leaves
Cover is tied to employment, so it ends when employment does. Nothing happens automatically after that, and this is the most commonly overlooked feature of the product.
Many policies include a continuation option allowing the employee to take over the policy personally, or a new employer to take it on, without fresh medical underwriting. For somebody whose health has changed since the policy started, that option can be worth a great deal — and it is normally exercisable only within a short window after leaving.
Where a business has several covered employees, review the arrangements whenever somebody joins or leaves. Companies routinely continue paying premiums for people who left months earlier, and equally routinely leave new directors uncovered because nobody revisited the schedule.
Once a company reaches a certain size, a group life scheme may become cheaper and simpler to administer than individual relevant life policies.
How Can I Protect My Business as Well?
While Relevant Life Cover is designed to protect the employee's family, it does not safeguard the employer. For full coverage, businesses should consider taking out complementary policies like Key Person Insurance. This policy protects the business financially in case of the loss of a key team member.
By combining Relevant Life with Key Person Insurance, you ensure comprehensive protection for both employees' families and the business itself. This dual approach provides security and stability, allowing you to focus on running your business with confidence.
At Bradgate FS we aim to make choosing and applying for a mortgage, protection, loan or insurance as stress-free as possible.
Offering Relevant Life Cover as part of your employment package not only helps you attract and retain top talent but also shows that your business values its people.
Contact our expert team today to explore tailored Insurance options for your business and employees. Together, we'll create a solution that benefits everyone involved.
Common questions
Who can take out Relevant Life Insurance?
Employers can set up this policy for employees, including directors, but it's not available to self-employed individuals.
Is Relevant Life Insurance tax-efficient?
Yes, premiums are usually tax-deductible for the employer, making it a cost-effective way to offer valuable employee benefits.
Can directors of small businesses benefit from this policy?
Yes, directors can be covered under Relevant Life Cover, offering protection for their families while benefiting from tax efficiencies.
Does this policy cover critical illness?
No, Relevant Life Insurance focuses on death in service and terminal illness. For critical illness cover, consider a separate policy or Key Person Insurance.
Can this policy be transferred if the employee changes jobs?
In some cases, the policy may be transferred to a new employer or continued personally by the employee. Check with the insurer for specific terms.
Related
Important information
This is a protection policy with no cash-in value at any time. Cover is subject to underwriting and to the terms and exclusions of the individual policy. If you stop paying premiums, cover will end.
No cost, no obligation
Talk to a Leicester adviser this week
One conversation is usually enough to tell you where you stand. Send the form and an adviser calls you back, normally the same working day.
Book your free consultation
No cost, no obligation. Tell us where you are up to and an adviser will call you back, usually the same working day.