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Relevant Life Insurance and personal Life Insurance both achieve roughly the same end goal, paying out a lump sum of money if you pass away.
However, the way each policy achieves this goal — and the premiums you therefore pay — are different. Ultimately, the major difference between personal Life Insurance and Relevant Life Cover is who pays for it and the tax savings that you can make as a result.
You pay for personal Life Insurance as an individual, from your own bank account. It pays out a lump sum to your family if you pass away.
Meanwhile, Relevant Life Insurance is paid for by a business or other eligible entity which employs staff.
A Relevant Life policy is a tax-efficient Life Insurance. Contractors and directors of their own limited companies are among the most common policyholders.
However, it’s also available wherever there’s an employer / employee relationship. For example, this may be where a business is not large enough to offer a full Group Life Insurance scheme to staff.
With Relevant Life Cover, it’s incredibly tax-efficient. Premiums can be up to 49% cheaper than a personal policy once you take into account income tax, national insurance and corporation tax savings.
The below table provides an overview of the main policy differences between a personal life insurance policy and Relevant Life Cover.
|
Personal Life Insurance |
Relevant Life Insurance |
|---|---|
| Who Pays For It? | |
|
You, the insured, from your own personal bank account. |
Your employer, typically your limited company if you’re a company director / contractor. |
| Eligibility | |
|
Available to anyone within the minimum / maximum age range of the policy. |
Available to company directors, contractors and certain other workers. |
| Level of Cover | |
|
Chosen by you. You’ll typically align this with an outstanding mortgage or the cost of ensuring your family are financially secure after your death. |
Fixed at a multiple of your remuneration. This will typically include salary and dividend income. It’s possible to insure up to 15x income depending on your age. |
| Type of Cover | |
|
Level (the benefit stays fixed across the life of the policy) or decreasing (sees the benefit fall across the life of the policy, often alongside a repayment mortgage). |
The vast majority of all Relevant Life policies offer level cover, where the benefit doesn’t decrease with time. |
| Critical Illness Cover? | |
|
Yes, add Critical Illness Cover to ensure a payout should you become critically ill as well as if you pass away. |
No, HMRC has not signed off adding Critical Illness Insurance to a Relevant Life policy. |
| Trust Available? | |
|
In most cases yes, it’s an optional, but often sensible, additional step. |
It is mandatory to write a Relevant Life Policy into trust from the outset. |
I’m a company director and I’ve heard about Relevant Life Insurance through my accountant. However, while the tax savings sound good, I’m curious about how a Relevant Life policy works. Just how is it different from personal Life Insurance?
