What Are the Benefits of Relevant Life Insurance?

I’ve newly set up my limited company. I’m now looking into Life Insurance for company directors to replicate what I used to have in my previous employed role.

I’ve come across Relevant Life Cover in my research. However, I’m not quite sure what the benefits of it are. Could you please explain?

Question asked by Richard Banks

Of course. There are many benefits to a Relevant Life Insurance policy. These mostly all centre on how tax-efficient the cover is. This allows for significant tax savings over a personal plan.

As you mentioned, company directors commonly use Relevant Life Insurance. It’s also available to contractors and other eligible workers.

When a limited company or other eligible entity, for example a charity, takes out Relevant Life Insurance for an employee, it is:

  • A business expense for corporation tax.
  • Free from income tax.
  • Free from employer and employee national insurance.

Furthermore, the policy is automatically set up in trust. This means the payout also bypasses your estate. There’s therefore no inheritance tax to pay.

One more benefit is that payouts are typically not included in pension lifetime allowance calculations. High earners with large pension pots therefore face less risk that their company Life Insurance will tip them over the edge of their pension lifetime allowance.

The Tax Savings

The above tax savings — laid out in the table — mean you can save almost 50% on Relevant Life Cover compared to a personal policy once the tax relief is taken into account.

Personal Life Cover
Relevant Life Cover
Cost to Individual
Monthly Premium
£100.00
£0.00
Employee NI Contribution
£3.45
£0.00
Income Tax
£68.97
£0.00
Cost to Business
Premium
£0.00
£100.00
Employer NI Contributions
£23.79
£0.00
Gross Cost
£196.21
£100.000
Corporation Tax
-£37.28
-£19.00
Total Cost
£158.93
£81.00
Total Savings

49.03%

I’ve held a policy with Drewberry for several years now. They are always friendly, insightful and offer great service.

Dan Pettitt
13/01/2021
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