In This Guide
- What is it?
- Do I need it?
- How does it work?
- How is it taxed?
- Relevant Life Calculator
- What does it cost?
- Compare best providers
- Need advice?
14 August 2018
What is Relevant Life Insurance?
A Relevant Life Policy is a type of Life Insurance specifically designed for business owners and company directors. Traditionally, there have been two ways of providing individuals with Life Insurance:
- Personal cover taken out by an individual;
- Cover taken out by employers to protect groups of employees under the same policy (most often known as death in service).
Relevant Life plans, on the other hand, are a variation of these two traditional approaches, allowing people to take out individual life cover for themselves through (and paid for by) their company.
Aside from this detail, Relevant Life Insurance is not too different from personal Life Insurance. Broadly speaking, upon death of the insured or other qualifying conditions, a lump sum is paid to their stated beneficiaries.
Neil
Pensions Advice
Robert
Income Protection
Do I Need a Relevant Life Policy?
If you don’t have any debts or expenses to consider, you may not need a Relevant Life policy. But, if you worry about your loved ones being strapped with bills after your death, Relevant Life Cover is a tax-efficient way to purchase life insurance to protect your loved ones.
If you are a small business owner and want to give something back to your employees, Relevant Life Insurance can also be a great employee benefit to offer when there are not enough employees to qualify for a Group Life Scheme.
Who Can Benefit from Relevant Life Cover?
Relevant life insurance is designed to provide cost effective life cover for:
- Small businesses who want to provide a level of company paid life cover whether for an employee or director but do not have enough eligible employees to qualify for a group death in service scheme.
- Higher earning employees who do not want their death-in-service benefits to form part of their lifetime allowance, and who have substantial pension funds.
The three greatest benefits of a Relevant Life policy for those that own a policy are:
- It’s tax-efficient
- Premiums are paid for by the business
- Payouts are typically not included in total maximum pension lifetime benefit calculations
- The benefit is paid out tax-free.
Financial worries remain one of the top causes of stress, especially for employees with families to support. If you provide yourself and your employees with a Relevant Life policy it can provide peace of mind knowing your loved ones would be looked after if the worst were to happen.
Samantha Haffenden-Angear, Cert CII
Independent Protection Expert at Drewberry
Victoria swiftly helped in finding a solution which offered the required cover, with a more competitive premium.
How Does a Relevant Life Policy Work?
Relevant Life Cover is similar to Death in Service in that it’s a policy owned by an organisation that covers the life of employees. However, the difference is that a Relevant Life policy covers only one employee per policy while a Death in Service policy can cover dozens or even hundreds of employees at once.
- If the covered employee dies with a Relevant Life policy in force, the insurer will pay out a lump sum into a trust owned by the company.
- The benefit payment is then distributed to the appropriate persons, usually the employee’s loved ones.
- Paying the benefit via a trust allows the payout to avoid inheritance tax.
While directors and owners of small companies often take out policies for their employees as an employee benefit, more often than not Relevant life Insurance policies are taken out by business owners to cover themselves. This is because Relevant Life policies are the most tax-efficient option for high earners, qualifying for a number of different tax reliefs on premiums and the payout.
What’s the Difference Between Relevant Life and Keyman Insurance?
Many people tend to confuse Keyman Insurance with Relevant Life Insurance. However, because of the important differences between these two types of Life Cover, making this mistake when taking out a policy can cause considerable problems.
What is Keyman Insurance?
Also known as Key Person Insurance – it is a policy taken out by an employer to cover a key member of staff to protect the business from suffering financial losses should the key individual pass away.
The payout of a Keyman policy is intended to benefit the business, typically to substitute for the loss of profit caused by that person’s death.
Key Person Insurance or Relevant Life Insurance?
If you are looking to protect your business and profits if an important employee dies, then a Keyman Insurance policy is the best option. However if you are a business owner or company director looking to take out affordable Life Insurance to protect your loved ones, Relevant Life Cover is an incredibly tax-efficient option.
Although the premiums for Relevant Life Cover are paid for by the company, it’s important to note that any benefit is ultimately paid to the family of the employee. After death, the benefit is paid into a relevant life trust owned by the company and then distributed from there, sidestepping any Life Insurance inheritance tax issues. The premiums are usually eligible for full corporation tax relief, also.
How is Relevant Life Insurance Taxed?
As far as our current understanding of HMRC’s tax rules surrounding Relevant Life Insurance goes – something you should check with your accountant/your local inspectorate of taxes – Relevant Life Cover:
- Is not classed as a taxable benefit in kind for the receiving employees;
- Is treatable as a tax deductible expense for the providing organisation (providing the local inspector of taxes agrees with the providing organisation’s compliance with all relevant qualifying conditions);
- Is excluded from NI calculations both for the employer and employee.
- Avoids inheritance tax by being written into a company owned trust.
Higher Rate Taxpayer Example…
A higher-rate taxpayer paying £100 a month in Life Insurance premiums via a standard personal plan (perhaps a self employed Director who pays his/her life cover from his/her personal income) would need to earn the equivalent of £172.42 to cover this amount.
Including company costs for National Insurance contributions and less corporation tax etc., the overall payable amount for £100 worth of cover would be £158.93.
With a Relevant Life plan, on the other hand, there would be no costs from his/her personal income and the overall cost for £100 worth of cover would be £81.00. This is a saving of £77.93 or 49.03%.
From this it can be seen is that there are a number of significant tax-efficiency advantages to providing this sort of cover.
It is important to note, however, that in order to meet HMRC qualifying requirements, the purpose in providing such a scheme must not be seen to be primarily as tax-avoidance.
Relevant Life Cover Calculator: How Much Can You Save?
Relevant Life Insurance Calculator
Your Relevant Life Tax Savings
By opting for Relevant Life Insurance over Personal Life Cover you would make savings of .
That is a saving of per month or per year.
These calculators help but sometimes it doesn't beat talking to a human. If you
need any support please do not hesitate to pop us a call on 01273646484.
Victoria Slade
Business Protection Expert at Drewberry
IMPORTANT NOTES
The tax treatment of Relevant Life Cover is based on the policy being wholly and exclusively for the purpose of trade. Cover can be offered to an employee as part of that employee’s remuneration package, which is competitive relative to what they could attract in the open market. The purpose of providing such a scheme must not be primarily to avoid tax.
Speaking to an expert adviser is highly recommended before entering into this type of arrangement to ensure the plan is set up correctly and you aren't falling foul of any tax rules. The team at Drewberry is here to help – just pop us a call on 01273646484.
Compare UK’s Best Relevant Life Insurance Providers
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AegonAegon, originally known as Scottish Equitable, has received 5 star Defaqto ratings for its service. Aegon has around 3.5 million customers in the UK alone and operations in more than 25 countries. With an Aegon Relevant Life policy, employees will also have access to Aegon’s Health & Wellbeing Service provided by Health Assured, putting you in touch with qualified and experienced counsellors at any time of day. |
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Legal & GeneralIn 2015, Legal & General won the ‘Life Insurance Provider of the year’ award from the Personal Touch Awards Up to the age of 50, Legal and General Relevant Life policies offer cover of up to 25 times remuneration, with that cover decreasing to 20 and 15 times if the employee is over 50 and 60 years old, respectively. If the employee leaves the company, Legal & General also allow ownership of the policy to be transferred to the person’s new employer to continue their cover. |
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Liverpool VictoriaLiverpool Victoria is one of the largest providers of insurance products in the UK, with more than 5 million customers across the country. LV offers a maximum level of Relevant Life Cover up to £10 million with guaranteed premiums that will not change during the life of the policy. It also offers several helpful benefits to accompany policies, including legal advice and VAT and tax advice. |
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Scottish WidowsScottish Widows is a highly praised provider of pension and insurance products across the UK with nearly 6 million customers. Scottish Widows Relevant Life plans can cover employees for up to £25 million. It also offers optional increasing cover to ensure benefits keep up with inflation and if an employee leaves the company, you and the policy’s trustees can arrange to assign the policy to the employee under their own name. |
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ZurichZurich owns locations in more than 170 countries and provides insurance products and services on a global scale. Zurich Relevant Life policies are portable, which means that employees leaving the company can take their Life Cover with them and have the policy continue under their own name. Zurich’s policies also typically cover a sum equal to multiple of the covered employee’s remuneration package, which can include both salary and dividends. |
The terms of Relevant Life Plans are not always the same as typical Life Insurance or Death In Service policies. For that reason, it helps a great deal to talk to an adviser who can explain your cover and help you choose the right options.
Victoria Slade
Business Protection Expert at Drewberry
Other Expert Small Business Insurance Guides...
Get Expert Relevant Life Insurance Advice
We are a independent insurance advisers that understand the Relevant Life Insurance market inside and out. We are not tied to any one insurer, which means we can help you find the most suitable cover for you. If you need any help please do not hesitate to pop us a call on 📞 01273646484 or email help@drewberry.co.uk.
Rob Harvey, Cert CII
Head of Protection Advice at Drewberry
Why Work With Drewberry™?
- We placed over £1 billion worth of risk with insurers for our clients in 2017
- We were nominated for Protection Intermediary of the Year at the Protection Review Awards in 2016, 2017 and 2018 and the Cover Excellence Awards in 2016 and 2017
- Our ethos is to provide the best possible service demonstrated by the growing number of 5-star rated reviews with 98% of our clients saying they would recommend us
- Rob and the rest of our insurance experts are frequently quoted in leading papers such as The Independent and Financial Times with a reputation in the media as an authority in our industry.
