Calculate the tax savings you can make by taking out a company paid Relevant Life Insurance policy instead of a personal Life Insurance policy.
Relevant Life Insurance (RLP) is a tax-efficient Life Insurance policy for business owners, directors or single employees paid for by a limited company. If the insured individual passes away, the cover pays out a tax-free cash lump sum benefit to financially support the loved ones of the deceased.
EXPERT TIP 🤓
If you are eligible for Relevant Life Insurance your premiums can be as much as 49% cheaper than an equivalent personal Life Insurance policy.
When setting up group life insurance is not possible RLP is a tax-efficient life policy that might be an option to consider for:
However, relevant life insurance is generally unavailable to:
You must fit certain eligibility criteria to ensure it is valid and all its tax savings remain in force. This includes having the correct employment status.
If you don’t have any debts or expenses to consider, you may not need a Relevant Life policy.
However, if you are a business owner worried about your loved ones struggling financially should you die, RLP is a tax-efficient life plan to protect your loved ones.
Based on ONS life expectancy data, the chances of a healthy individual of various ages passing away in the next 10 years is as follows:
Risk Of Dying In Next 10 Years
30 Years Old
1 in 112
40 Years Old
1 in 53
50 Years Old
1 in 23
RLP will provide your loved ones with a tax-free cash lump should you die.
When setting up cover there are a range of factors you need to consider to make sure it is appropriate for your needs.
As a company paid policy insurers define the level of cover as a multiple of your income which can include your salary, bonus, regular dividends and the cash value of any benefit in kind.
The maximum level of cover is age dependant but most insurers will allow you to cover up to 15 x your total remuneration.
As an employee benefit many firms often provide around 4 x salary as a benefit. However, with Relevant Life Insurance you can decide on a level of cover and it is important to work out how much your loved ones would need should you pass away.
Where Relevant Life Insurance is a company paid policy the level of cover is often aligned with the policy holders expected retirement age.
You will need to decide on a cease age when setting up your cover and can choose any age right up to 75 years old.
You can opt to increase your cover automatically each year in line with inflation.
There is an additional cost to include indexation as the level of cover will increase over time. However, it ensures your level of benefit is not eroded by inflation and maintains it’s buying power over the term of the policy.
Guaranteed premiums tend to be more expensive from the outset however it does mean they are fixed over the life of the policy and can’t be increased by the insurer.
With reviewable premiums the insurer will look to review what you are paying every 5 years. They will look at things such as their claims experience, medical advances, any changes in law and the industry to decide on what premiums you should be paying for the next 5 years.
Although reviewable premiums often start cheaper they tend to work out more expensive over the life of the policy.
There are a number of factors that will determine the cost of Relevant Life Cover. Some are key policy factors you can control, such as:
Other personal factors that you have less control over which will still impact on the cost of your policy include:
We’ve used our Relevant Life Insurance Calculator to obtain quotes for three individuals aged 25, 35 and 45.
To calculate these premiums, we’ve assumed:
25 Years Old
35 Years Old
45 Years Old
To calculate the cost of your own policy you are able to get instant online relevant life quotes comparing the top 10 UK insurers here →
Imagine a Life Insurance policy which, on a personal basis, costs £100 a month. You’ve already paid taxes and national insurance contributions on the funds you use to pay the premiums.
This means, in effect, a higher-rate taxpayer has had to earn £196.21 within the business before they afford to pay a £100 Life Insurance premium.
However, you pay Relevant Life Insurance out of money before HMRC deducts taxes and national insurance contributions. A policy with exactly the same monthly premium could therefore save as much as 49% over a personal plan.
Personal Life Cover
Relevant Life Policy
Cost to Individual
Employee NI Contribution
Cost to Business
Employer NI Contributions
You can use our relevant life tax saving calculator to work out your exact savings based on your own premiums 🤓.
Relevant Life Insurance benefits from the same tax position as group death in service which is one of the most tax-efficient forms of term assurance with income tax, National Insurance and corporation tax relief.
IMPORTANT NOTICE 🧐
Before applying you should check with your accountant and your local inspectorate of taxes. First and foremost, in order to meet HMRC’s requirements, it must not be seen to be primarily for tax-avoidance.
Yes, when relevant life cover is set up correctly it is typically:
A plan is also:
Most importantly, for Relevant Life Insurance to retain its tax-efficient status, you must not use the benefit for business protection. To protect your business, consider Keyman Insurance instead.
As long as the relevant life policy is structured correctly, despite the fact that the company owns and pays for the cover it is not a P11D Benefit. The employee / company director therefore usually has no additional tax to pay as a result of having this cover.
Yes, a trust is integral to the policy.
It ensures the payout bypasses both the business and the estate of the deceased. This therefore avoids any nasty tax implications for either the company or the individual and their family.
No, it is our understanding of current tax legislation that you cannot include Critical Illness Cover.
Doing so negates the tax-efficient nature of the relevant life cover because HMRC has not signed this off as an allowable business expense.
What you may be interested in is a policy known as Executive Income Protection. If you become too ill or injured to work, it kicks in after a set waiting period to pay up to 80% of your remuneration (i.e. salary and dividends).
Most providers now offer the option to convert your relevant life insurance to a personal policy.
Usually there is a short form to be completed and a new direct debit set-up.
Like a group scheme the level of cover is generally defined as a multiple of salary.
Although it can vary most providers allow you to cover up to 15 times your total remuneration which can include your salary and dividend payments.
One of the stipulations of Relevant Life Insurance is that it must be owned and paid for by the employer. Where a soletrader has no separate legal entity they are not eligible.
There are multiple business protection providers in the market. Some have better additional benefits / support services than others, for example, while certain insurers will cover you for higher sums assured / multiples of remuneration.
Some of the best insurers include:
Both group death in service and individual cover often come with additional benefits, and relevant life cover is no exception. These are support services you can use beyond just the ‘core’ element of the policy, which focuses on paying out on death or being diagnosed with a terminal illness.
For example, a typical additional benefits package might include one or more of the following:
While our relevant life cost calculator can provide instant online quotes, it’s very important to set up the policy correctly to take advantage of the tax breaks.
As an independent financial adviser we arrange our clients employee benefits from start to finish, doing all the heavy lifting to ensure you or an employee has the most suitable business protection in place.
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service 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 talk to us.
If you need help setting up relevant life cover give us a call us on 02084327333 or email email@example.com.