Accountants’ Guide to Relevant Life Cover

04/07/2022
10 mins

What is Relevant Life Insurance?

Relevant Life Insurance is a type of Life Insurance that is owned and paid for by a business. It is underwritten based on the life of a single individual. The policy is placed in a specially-created trust at the outset to hold any payout should it occur, shielding the benefit from inheritance tax.

Many small business owners could benefit from the tax efficiencies this cover can provide over paying for a Life Insurance policy personally.

As an accountant, one of your many jobs for clients who are directors of their own limited company is to help save them tax. If they’re considering paying for Life Insurance out of their own pocket, in this light it may be worth suggesting Relevant Life Insurance instead.

Tom Conner Director at Drewberry

Here we look at Relevant Life Cover in more detail and specifically how it can help small business owners save money.

Given that many small business owners haven’t heard of Relevant Life Insurance, just mentioning it represents another opportunity for accountants to add value for their clients.

Tom Conner
Director at Drewberry

Who Benefits from Relevant Life Insurance?

Relevant Life Cover can be a very tax-efficient method of providing Life Insurance for:

  • Directors of small companies who otherwise would need to use their personal income to pay for life cover
  • High earning employees who are looking to avoid the potential of their death-in-service benefits becoming part of their lifetime allowance for pension purposes
  • Small businesses who want to offer cover to a single employee.

In practical terms, Relevant Life cover proves very popular with the owners of small businesses where the company doesn’t have a Group Life Insurance scheme, most commonly because the company is too small to provide one.

Providing there is a company vehicle set up to pay for the cover, Relevant Life Insurance can cover any employee of that company, although as mentioned it’s most commonly used by people such as contractors who work through their own limited company.

We’ve seen a notable uptick of Relevant Life Insurance amongst micro-businesses over the past few years and have been able to help a huge number of directors get the Life Insurance they’re looking for and all for a lower price once tax savings are taken into account.

Why is Relevant Life Cover So Tax-Efficient?

Small businesses often don’t have the number of employees needed for a Group Life Insurance scheme, which means they can potentially miss out on some of the tax-efficient benefits of having Life Insurance paid for by the company.

Relevant Life Cover addresses this by allowing smaller businesses to offer Life Insurance for a single employee, with tax benefits similar to that of a Group Life Insurance Scheme.

Naturally that single employee could be the owner of the business, and more than one policy can be taken out to cover more than one employee.

As premiums for Relevant Life Cover are paid through the client’s business, any benefit paid out:

  • Will normally be free of income tax, National Insurance contributions and capital gains tax
  • Won’t usually count towards the employee’s lifetime pension allowance (because it’s a ‘non-registered’ scheme)
  • Won’t usually be included in the employee’s estate for inheritance tax purposes as the benefits are held in trust.

What’s more, the premiums will:

  • Usually be treated as an allowable expense for corporation tax purposes
  • Not incur National Insurance contributions for either employees or employers
  • Not constitute a P11D benefit.

Small Business Owners’ Savings with Relevant Life Insurance

The actual amount of the saving over personal cover will depend on the employee’s / business owner’s marginal rate of income / dividend tax.

Take John, a company director who pays himself a dividend…

John remunerates himself via a basic salary up to the National Insurance threshold and pays the remainder in dividends. John plans to take out life cover with a monthly premium of £100.

Factoring in both corporation tax (at 19%) and dividend tax (at the higher marginal rate of 32.5%), if John were paying for the cover from his personal income (i.e. dividends) the business would need to generate a profit before tax of £182.90 to fund his premium.

If the business pays for a Relevant Life policy it means there are no associated costs to personal income. This means the effective cost for £100 per month worth of cover once Corporation Tax relief has been applied would be £81.00 per month.

By opting for Relevant Life Cover, John is effectively saving a total of £101.90 per month which is £1,222.80 per annum, and represents a 55.7% reduction in total cost.

Sally, another company director and higher-rate taxpayer

relevant life savings from income

Sally was looking to pay for Life Insurance out of PAYE earnings. Sally pays a 40% marginal rate of income tax and pays 2% in National Insurance contributions. She’s looking to buy £100 of life cover out of her own pocket.

Factoring in income tax and both employee and employer National Insurance contributions, if Sally were to pay for cover from her personal income the gross cost to the business to fund the premium would be £196.21 per month.

However, with corporation tax relief this falls to £158.93 per month.

As the business pays for the Relevant Life policy it means there are no associated costs to personal income, which means the effective cost for £100 per month worth of cover once Corporation Tax relief has been applied would be £81.00 per month.

By opting for Relevant Life Cover, Sally is saving a total of £77.93 per month which is £935.16 per annum, and represents a 49% effective saving.

samatha haffenden-angear, independent protection expert at drewberry

Despite the significant savings Relevant Life cover can provide for company directors, research from Legal & General has found that 63% of directors had never heard of this type of cover.

To try and address this, Drewberry has developed and recently launched a Relevant Life Insurance Calculator as per below which demonstrates the potential savings for clients covering both traditional employees and Company Directors receiving dividends.

Samantha Haffenden-Angear
Business Protection Expert at Drewberry

Relevant Life Insurance Calculator

Calculate the tax savings you can make by taking out a company paid Relevant Life Insurance policy instead of a personal Life Insurance policy.

  • £

The Best Way to Compare Relevant Life Cover

Drewberry Launches Online Relevant Life Quote Engine

Drewberry helps hundreds of small businesses form across the UK every year arrange protection plans such as Relevant Life Cover, Key Person Insurance and Shareholder Protection Insurance. We also provide advice on pensions and investments.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

  • There is no fee for our service
  • We are independent and impartial
    Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
  • We’ve got bargaining power on our side
    This allows us to negotiate better premiums for you than you going direct yourself.
  • You’ll speak to a dedicated expert from start to finish
    You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
  • Benefit from our 5-star service
    We pride ourselves on providing a 5-star service, as can be seen from our 3734 and growing independent client reviews rating us at 4.92 / 5.
  • Gain the protection of regulated advice
    You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
  • Claims support when you need it the most
    You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

We aim to provide a five-star service and 99% of clients would recommend us.

Drewberry is currently the only website in the UK where clients can compare online quotes across all major insurers for Relevant Life Insurance and Key Person Insurance.

Partner with Drewberry

We thought the traditional way of introducing a client was a little antiquated and lacked transparency, send your partner an email and hope for the best! We like to do things properly and we wanted to make this experience better.

So we built our partnership portal, you can log in to your portal and have complete information on the clients you have introduced and know they are being dealt with in a professional manner. You can click here to demo our partnership portal →

Tom Conner Director at Drewberry

We currently work in partnership with a number of professional businesses including accountancy firms who engage with their clients regarding business protection insurance.

If you would like to discuss in more detail how we can help your small business clients, please contact me on 07714980112 or email tomconner@drewberryinsurance.co.uk.

Tom Conner
Director at Drewberry

Contact Us

Head Office & Pensions and Investments
Senator House
85 Queen Victoria Street
London
EC4V 4AB
Personal Insurance & Accounts Payable
Telecom House
125-135 Preston Road
Brighton
BN1 6AF
Drewberry London Office MapDrewberry Brighton Office Map

If you are unhappy with our service, we have a complaints procedure, details of which are available upon request. If you are unhappy with how your complaint has been dealt with, you may be able to refer your complaint to the Financial Ombudsman Service (FOS). The FOS website is www.financial-ombudsman.org.uk.

Drewberry Ltd is registered in England and Wales. Companies House No. 06675912

Drewberry Ltd registered office: Telecom House, Preston Road, Brighton, England, BN1 6AF. Telephone 0208 432 7333

Drewberry Ltd (Financial Conduct Authority No. 505473) is an Appointed Representative of Quilter Wealth Limited and Quilter Mortgage Planning

Limited, which are authorised and regulated by the Financial Conduct Authority.