Relevant Life Insurance

A Relevant Life Policy is a type of Life Insurance specifically designed to protect a single employee or director. 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 resulting in cost savings due to its tax-efficient nature.

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.

Relevant Life Cover in its simplest form is very similar to a term life insurance policy and works in much the same way paying out a cash lump sum on death. The vital difference is that the company is setting up the policy and paying the premiums to protect the employee or director.

• If the covered employee dies whilst the policy is 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.

It is also the most tax-efficient option for high earners, qualifying for a number of different tax reliefs on premiums and the payout.

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 struggling financially should you die, it 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.

Whats the risk of passing away?

Based on ONS life expectancy data (2008-10), the chances of someone passing away within the next 10 years are as follows:

With 2 out of 5 people in the UK having less than £100 at the end of the month, many employees are feeling the stress of financial uncertainty and perhaps wouldn’t pay for life cover out of their own pockets.

There are a number of factors that will determine the cost of Relevant Life Insurance, some of key policy factors which you can control include:

• Level of cover
  The more cover you require the higher the premium for the policy.
• Length of cover
  The longer the policy term the higher the risk of needing to claim and this is reflected in higher premiums.

Other personal factors that you have less control over which will still impact on the cost of your policy include:

• Your age
  The older we are, the greater the risk of passing away during the term of the policy
• Your current state of health
  Those with severe health conditions, especially those which might limit life expectancy, will typically pay more for Life Insurance to reflect the greater risk the insurer is taking on
• Your smoker status
  If you smoke, you’re at greater risk of developing a serious, fatal health condition and so insurers will charge more
• Lifestyle and hazardous activities
  Lifestyle habits, such as regularly drinking more alcohol than is recommended, or participating in hazardous activities, could result in an insurer increasing the cost of your cover
• Family history 
  Has any of your immediate family ever suffered a serious and/or hereditary illness that may impact you? If so, you may pay more for life cover.