Relevant Life Insurance

What Is Relevant Life Protection?

At its core, Relevant Life Insurance works just like any other form of life protection. If the insured person dies, the policy pays out a tax-free lump sum. The funds are then paid to the deceased’s loved ones.

However, there are some differences between personal life insurance and relevant life cover. The key areas where Relevant Life Cover works differently include:

• You’re covered for death and terminal illness (due to the advantageous tax position you can’t include Critical Illness Cover)
• Policy premiums are paid by the company as an allowable business expense
• The death in service benefits are paid out tax-free, thanks to the trust structure set up alongside the policy.

We’ll cover the tax implications in more detail later on. But ultimately, Relevant Life Protection is a recommended alternative for business owners who aren’t eligible for Group Life Insurance. It’s best suited to business owners and contractors working through their own limited company or small business.

Why Is Relevant Life Insurance Important?

Most people live with debts and expenses in one form or another. This could be supporting a family, a mortgage, or any other kind of liability or loan.

How would your loved ones cope if you were to suddenly pass away? If you have financial dependents, how would they be cared for? And how would a partner cope without your income?

If the answer is that it’d be a struggle, taking out a Relevant Life policy is a very important safeguard. And as a business owner, you’re in the unique position of being able to save a huge amount of tax on such a policy.

How Does Relevant Life Protection Work?

Rather than taking out personal Life Insurance in the normal way, you take out a policy through your company. This means your business pays for the premiums, rather than you paying personally.

However, unlike some other forms of company-paid Business Protection, a Relevant Life policy doesn’t benefit your business. For example, Keyman Insurance, Business Loan Protection, and Shareholder Protection all have a focus on business continuity.

If you pass away with a Relevant Life plan, it provides your loved ones with the financial security they’ll need in your absence. It’s a very tax-efficient benefit for company owners.

When setting up a policy, there are few things to consider to make sure it meets your needs.

Type Of Cover

Like other life protection plans, Relevant Life Cover not only pays out on death but also if you become terminally ill. Most insurers define terminal illness as an incurable condition, where you have 12 or fewer months left to live.

It’s important to remember that Critical Illness Cover cannot be included. While HMRC has approved the tax efficiencies on Life Insurance for company owners, they haven’t approved the same setup for Critical Illness Cover.

Level Vs. Increasing Cover

Another feature you’ll need to decide on is the type of Relevant Life Insurance you want. You can have either Level Life Insurance, or increasing cover.

As you may already know, level cover remains the same throughout the term of the policy. But index-linked cover rises with the annual rate of inflation. This helps to prevent your benefit from losing value in real-terms thanks to inflation.

Increasing cover may suit you if your business costs keep pace with inflation. As your fees and revenue rises, your life benefit keeps up, too.

If you want index-linked cover, all providers will increase your premiums to account for the increase.

However, it ensures your level of benefit is not eroded by inflation and maintains its buying power over time.

Samantha Haffenden-Angear
Independent Protection Advisor

Guaranteed Vs. Reviewable Premiums

Another factor to consider is what kind of premiums your company will pay for your cover. Guaranteed premiums tend to cost more at first. But, they remain fixed over the life of the policy and won’t rise later on.

On the other hand, reviewable premiums can be more cost-effective at first. But, the insurer will review the premiums every 5 years. They’ll consider lots of factors, such as:

• Their claims experience
• Medical advancements
• Any changes in law and the industry.

After the review, the provider might increase or decrease the premiums as they see fit. The fact is that although reviewable premiums often start cheaper; they tend to cost more in the long run.

Should I Consider Relevant Life Insurance?

As mentioned, Relevant Life plans are a good alternative to group life schemes. They provide a form of personal Life Insurance that benefits your loved ones, but it’s paid for by your company.

When it comes to group schemes, many providers will only offer cover to a minimum of 10 members. There are insurers that will provide schemes for groups of 3, but it’s a narrow range of options.

A limited company can take out Relevant Life Cover for individual employees. Doing so provides very tax-efficient life cover, which may be a great option for:

• Contractors
• Company directors
• Micro businesses without enough employees for a Death in Service scheme
• High earning employees with substantial pension funds who may face a pension lifetime allowance issue. (Before the abolition of the lifetime allowance, announced in the Spring 2023 budget.)

You must meet some eligibility criteria to make sure the policy—and all its tax savings—are valid. This includes things like having the right employment status.

If you’re not eligible, there are other ways to provide life cover through your company. As we mentioned before, there are other forms of Life Insurance that also act as Business Protection. Shareholder Protection or Key Person Protection might end up being more suitable for you.

What Is The Risk Of Death?

If you’re relatively healthy, the chances are you expect to live a long life. No-one likes thinking about making preparations for their passing, so it’s easy to keep putting it off.

As sad as it is to consider our mortality, it’s important to be prepared if the worst should happen. Too often, the alternative means leaving your loved ones without the right provisions.

We’ve looked into life expectancy data from the Office of National Statistics (ONS). According to them, the chances of a healthy man passing away in the next 10 years—based on age—are as follows:

We realise it’s a bit on the morbid side, but we’ve included our life expectancy calculator below. This is based on the same life expectancy data from the ONS, so you can think about what kind of cover you might need.

How Much Relevant Life Insurance Do I Need?

Taking out a Relevant Life policy is one thing, making sure you have enough cover to ensure your loved ones are financially secure is another.

As the premiums are paid by your company, the amount of cover will be a multiple of your income. This includes your salary, of course, but also any bonuses, dividends, and the cash value of any benefits-in-kind.

Before taking out protection, think about what your loved ones would need financially to cover things such as:

• Outstanding debts
• Mortgage payments
• School fees
• Future expenses.

The maximum amount of cover you can have depends on your age and the insurance provider. As a general rule of thumb, though, most providers let you cover up to 15 times your total earnings.

When Death in Service benefits are offered as an employee benefit, 4 x salary is a pretty typical amount. But with Relevant Life Cover, you can choose the amount insured. So, it’s important to work out how much your loved ones and financial dependents might need if you pass away.

How Long Should Your Cover Last?

Because Relevant Life Insurance is linked to your company, it’s normally expected to last until you retire.

You’ll need to decide on an expiry age when setting up your policy, usually up to 75 years old. So, you’ll want to think about retirement planning and when you expect to stop working.

How Much Does Relevant Life Insurance Cost?

The cost of Relevant Life Cover is based on the same factors as personal Life Insurance. You can control some of these factors, like your amount of cover, policy term, and insurance provider. There are other factors that are outside of your control, though, like your age and medical history.

We’ve got some quotes to give you an idea of how much a Relevant Life Policy might cost. These take into account some of the factors from above.

Provider

The insurance provider you choose will have an impact on the cost of your premiums. This is because all insurers have different ways of calculating risk—and therefore, costs.

Below, you’ll see an example of quotes from 2 different providers. The figures are based on:

• A healthy, 35-year-old company director
• £500,000 of Level cover
• A 25-year term.

Insurance Provider
£24.21 per month	£26.45 per month

Quotes correct as of May 2023

Level Of Cover

Your chosen amount of cover, or sum assured, is a big factor when it comes to cost. You need to think about how much you need to leave for your loved ones if you’re not around anymore.

We’ve got some quotes for the same 35-year-old director on the same basis as before. This time, the figures show the monthly premium for 2 benefit amounts from Liverpool Victoria (LV).

Policy Term

With Relevant Life Insurance, you can choose your policy term. As we mentioned before, you’ll probably want the cover to stay in place until your planned retirement age.

We’ve run quotes for our same 35-year-old company director, but with different policy terms. These figures are from AIG.

Age

Another key factor when it comes to cost is how old you are. With insurance, it’s always cheaper if you take out cover at a younger age.

To illustrate this, we’ve got figures for a healthy individual taking out £500,000 of level cover for 20 years. These quotes are from Royal London.

Medical History

When you apply for an insurance policy, providers assess the risk of providing that cover. If you have any existing health conditions, it could impact your amount of cover or the terms of your policy.

With Life Insurance, a pre-existing condition might cause an increase in your policy premiums. This could be because of your body mass index (BMI), a previous illness, or a chronic condition.

Each provider differs, though, so what one sees as high risk another might not. This is why it’s so important to compare providers when doing your research.

Smoker Status

It’s a fact that smoking increases the risks and severity of lots of health issues. This is why most providers charge more for smokers compared with non-smokers. But, there are some providers who have a ‘neutral’ approach to smoking, so premiums won’t cost more.

To show how smoking can impact your premiums, here’s more comparison quotes. The figures are based on an otherwise healthy 35-year-old company director who wants £500,000 of level cover for 20 years.

Occupation

If you’re looking into Relevant Life Insurance, you’re probably a company director. But the industry your role takes place in could impact your premiums depending on whether it’s high risk.

If you have a hands-on role in a high-risk industry, such as construction, this will be seen as higher risk than, say, a marketing consultant. Because of this higher risk, it’s likely you’ll pay higher premiums.

Hazardous Hobbies

It’s not just your job role that providers will look at. They’ll also ask if you do any extreme sports or hazardous hobbies, because these would also classify you as a higher risk category. Hazardous activities might include:

• Diving
• Free style rock climbing
• Motor sports
• Bungee jumping
• Parachuting
• Private plane flying.

Most online quote tools only show an initial premium, which doesn’t take into account any extra risk factors. So, the actual cost could grow later.

We can work with providers to negotiate the best price on your behalf if you feel you’re at a higher risk. Just pop us a call on 02084327333 or email help@drewberry.co.uk.

Rauri Taylor
Independent Protection Expert

Remember, what we’ve provided here are just examples. Your actual costs will depend on your own circumstances. If you’re ready to search for quotes and apply, you can use our handy online quote tool.

How Much Tax Does Relevant Life Insurance Save?

Imagine you have a personal Life Insurance policy which costs you £100 a month. Before you receive the funds to pay this premium, you’ll pay income tax and National Insurance (NI) contributions on your earnings.

In real terms, this means a high-rate taxpayer needs to earn £196.21 before tax so that they can afford to pay a £100 Life Insurance premium.

But with Relevant Life Cover, your business pays for the premiums before HMRC can deduct any tax and National Insurance Contributions (NIC). As a result, a policy with exactly the same monthly premium could save you as much as 49% compared to a personal plan.

Corporation Tax Savings

We’ve provided a breakdown of this below.

To find out how much you could save in tax, you can use our Relevant Life Tax Saving Calculator below. This will work out your exact savings based on your own premiums and earnings.

How Does HMRC Tax Relevant Life Protection?

Relevant Life Protection benefits from the same tax savings as a group Death in Service benefit, which is one of the most tax-efficient forms of insurance. Both are considered very tax efficient benefit in terms of tax, NI, and corporation tax relief.

Is It HMRC-Approved?

Yes, when set up correctly, Relevant Life Insurance is typically:

• A tax-deductible business expense (providing the local inspector of taxes agrees the scheme meets all relevant qualifying conditions)
• Excluded from NI calculations both for employer and employee
• The lump sum death benefit is not subject to inheritance tax due to being written into trust from the outset.

A plan is also:

• Only available up to age 75
• Available only where there is an employee / employer relationship
• Not compatible with Critical Illness Cover
• Only available as a pure protection policy with no surrender value or investment element
• Permitted only where the benefit will be paid via a trust to an individual or nominated charity.

Most importantly, for Relevant Life to retain its tax efficiency, you must not use the benefit for business protection. There are other ways to protect your business which also provide life insurance. For example, Key Person Insurance or Business Loan Protection.

Is It A P11D / Benefit in Kind?

As long as the policy is structured correctly, HMRC does not consider it a P11D Benefit. This is the case even though the company owns and pays for the plan. The employee or company director also has no additional tax to pay from having the cover.

Do I Need A Trust?

Yes, a Relevant Life plan trust is integral to the policy.

A trust ensures the death benefit bypasses both the business and the estate of the deceased. This avoids any nasty tax implications for either the company or the employee’s family.

Can I Include Critical Illness Cover?

No, it’s our understanding of current tax legislation that you cannot include Critical Illness Cover in your RLP plan.

Doing so negates the tax-efficient nature of the Relevant Life Cover. This is because HMRC hasn’t approved Critical Illness Cover as a tax-deductible 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. The policy can then pay up to 80% of your total remuneration (i.e. salary and dividends).

Who Are the Best UK Relevant Life Insurance Providers In 2023?

There are multiple Relevant Life providers on the market. They’re all different, not only with their attitudes to risk but also with their unique policy offering and additional benefits.

Some insurers prioritise extra features and support services. Others might cover you for higher sums assured or multiples of earnings.

Some of the best Relevant Life Insurance providers include:

• Aegon
• AIG
• Aviva
• Legal & General
• Liverpool Victoria
• Royal London
• Scottish Widows
• Vitality
• Zurich.

Here at Drewberry™ we work with the whole of the market. This means we’ll get quotes from all UK providers and negotiate for the most competitive premiums.

The Best Additional Benefits

Your policy will perform its core function of paying out in the event of death or terminal illness. On top of that, and like most forms of group and individual protection, Relevant Life Cover comes with some extra features.

These are support services you can use to maintain your health, fitness and overall wellbeing. Some of the services can be shared with your family as well as helping to improve or maintain your own life.

For example, a typical additional benefits package might come with any of the following:

• 24/7 remote GP services
• Best doctors, for a second medical opinion service
• Counselling sessions
• Bereavement support for your loved ones in the event of a claim
• A funeral pledge, to release a proportion of your funds early. This can be used if your payout is tied up in probate and your family needs cash for funeral expenses.

It’s important to compare the extra services carefully, so you can make the most out of any additional benefits.

Using an adviser offers you extra financial protection, because it’s classed as an advised sale. This means if the policy ends up not being suitable, you’re protected by the FCA.

To speak to a friendly member of our team, call us on 02084327333, or email help@drewberry.co.uk.

Alex Weir
Independent Protection Expert

Compare Relevant Life Insurance Quotes & Get Expert Advice

Setting up a Relevant Life Plan demands a lot of thought and consideration. There are many policy factors to decide, like tax implications and trust paperwork.

In our experience, company directors are never not busy. When you’re running your own business, it’s tricky to find time for much else.

This is where our expert financial advisors can help. We’ll listen carefully to understand your needs and arrange cover in the most cost effective way. And our protection consultants will make sure the policy is set up correctly to take advantage of the tax breaks.

Why Speak to Us?

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.

• We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
• You’ll speak to a dedicated expert from start to finish
• We are very proud of the 3640 and growing independent client reviews rating us at 4.92 / 5
• We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐
• Claims support when you need it most.

If you need help setting up Relevant Life Cover, give us a call us on 02084327333 or email help@drewberry.co.uk.