Can My Limited Company Pay for My Life Insurance?

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08-02-2021

At Drewberry, many of our company director and contractor clients are used to offsetting expenses through their business. They therefore wonder if they can set-up and pay for policies such as Life Insurance through their limited company as well.

In short the answer is yes, your business can pay for your Life Insurance but there are various ways you can set-up your cover.

You can provide it to yourself and your staff as an employee benefit, known as Group Life Insurance. Many larger firms do this. Alternatively, you can take out an individual policy your company pays for if your business is smaller.

I Have Fewer Than Three Employees…

You can’t get Group Life Insurance (also known as Death in Service Cover) if you:

  • Have fewer than three staff
  • Are a solo company director
  • Are not yet ready to roll out benefits beyond yourself as the director.

Fortunately, so small businesses don’t miss out on valuable perks, Relevant Life Insurance provides an alternative, company-paid Life Insurance for directors.

What is Relevant Life Insurance?

In brief, Relevant Life Cover:

  • Is an individual Life Insurance policy your company pays for on behalf of a director or another employee of the company.
  • Can replicate the Death in Service benefit you may have previously had when working for a larger organisation.
  • Offers a level benefit of a multiple of your remuneration (including both salary and dividends), ranging from between 15-25 times your pay.
  • Is free from inheritance tax on a claim as a specially-drafted trust owns the policy and receives the payout initially before passing it to you.
  • Offers significant tax-efficiency over paying for personal cover out of your own pocket as premiums are typically a tax deductible business expense.
  • Is not liable to income tax or national insurance contributions on the premiums.
  • Is not a P11D benefit in kind.

Why Relevant Life Insurance?

Relevant Life Insurance allows your business to give something back for all the hard work you’ve put in over the years in the form of peace of mind for you and your family.

After all, larger companies offer Death in Service to employees. HMRC allows these premiums as a business expense against corporation tax, so why shouldn’t smaller companies also benefit?

It’s a cost-effective way to offer your loved ones peace of mind should the worst happen. They can use the funds however they see fit, from repaying the mortgage to maintaining their lifestyle after you’re gone.

Example Savings With Relevant Life Insurance

In a world without Relevant Life Cover, if you didn’t have enough workers to set up Death in Service Insurance, the alternative would be buying a personal policy.

With personal Life Insurance, you pay premiums from your individual bank account, using funds HMRC has already deducted taxes and national insurance from.

However, your company pays Relevant Life Insurance premiums before tax. That means you make both tax and national insurance savings on premiums, leading to significant savings for company director Life Insurance over a personal plan.

Personal Life Cover

Relevant Life Policy

Cost to Individual

Monthly Premiums

£100.00

£0.00

Employee NI Contribution

£3.45

£0.00

Income Tax

£68.97

£0.00

Cost to Business

Premium

£0.00

£100.00

Employer NI Contributions

£23.79

£0.00

Gross Cost

£196.21

£100.00

Corporation Tax

-£37.28

-£19.00

Total Cost

£158.93

£81.00

Total Savings

49.03%

What if I Go Back to Employment?

If you return to an employed role in the future — as many clients have recently thanks to IR35 — there’s no need to worry. Most Relevant Life Insurance lets you convert it to personal cover.

If you cancelled Relevant Life Insurance on going back to employment, you’d have to reapply for personal cover when you’re older. At this point premiums will be higher, especially if you’ve suffered any health conditions in the meantime. Converting a policy on the same terms instead can therefore be really valuable.

I Have More Than Three Employees…

If you do have more than three workers, you can choose Group Life Assurance if you want to cover your staff as well as yourself.

What is Group Life Insurance / Death in Service Cover?

In brief, Group Life Insurance:

  • Is a company Life Insurance policy covering multiple employees that your business pays for.
  • Is also known as Death in Service Cover.
  • Can cover both yourself as the director and all of your workers.
  • Pays out a multiple of a worker’s income, generally between 2 and 4 times their income (but up to 15 times their earnings is possible).
  • Is free from inheritance tax on a claim due to a trust.
  • Usually offers corporation tax relief on the premiums.
  • Is not a P11D benefit in kind.
  • Is one of the cheapest paid for insurance benefits you can offer your workers.
  • Requires no medical underwriting for most workers (unlike Relevant Life Insurance), as most staff will be under the free cover limit, allowing those with health conditions to get cover on the same terms as healthy employees.

Why Group Life Insurance?

Firstly, only around 1 in 3 adults in the UK said they had some form of Life Insurance. That leaves a sizeable majority uninsured. It’s no wonder that Group Life Insurance is in the top five benefits workers want their company to offer.

Also, Group Life Insurance is the cheapest paid for insurance benefit on the market. The overall cost of Group Life Insurance depends on a variety of factors, such as where you’re based, the number of workers you have, the industry you’re in and the level of cover you offer.

However, it’s often cheaper than many people think — take a look at these example premiums for more detail.

Nadeem Farid Head of Employee Benefits at Drewberry

Offering perks and benefits improves employee retention and helps with recruitment.

That’s why our client Profile Pensions introduced their Group Life Insurance scheme — check out their story here.

Nadeem Farid
Head of Employee Benefits at Drewberry

Do I Really Need Life Insurance?

Life Insurance is incredibly important if you have a mortgage or a family.

Having sufficient cover in place can offer much needed financial support to your loved ones should the worst happen. It could help them pay the mortgage or maintain their standard of living should, for example.

Without Life Insurance, many families would struggle if they lost a breadwinner. Drewberry’s Wealth & Protection Survey found1 in 4 individuals would still have a mortgage of £100,000+ to pay if they fell ill (or passed away) right now.

If you are a company director, you have the option for your limited company to pay for your Life Insurance in an incredibly tax-efficient manner. That way, you don’t have to worry about how your family would cope without you.

The Risk of Passing Away…

No one wants to think about the risk of passing away. However, to be responsible, it’s something we need to plan for. The unexpected death of a parent could leave a huge financial burden for their family.

In the table below, we’ve used our Life Expectancy Calculator to lay out the risk of a healthy man passing away in the next 10 years.

Age

Risk of Passing Away

35 Years Old

1 in 62

45 Years Old

1 in 29

55 Years Old

1 in 12

Get Company Life Insurance Quotes and Expert Advice

We advise our clients on a daily basis on which type of Company Life Insurance would be best suited to their needs, taking into account factors such as your policy needs, occupation and health.

As independent experts we have access to all leading UK insurers to find you the best policy for your circumstances.

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 issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

For help and fee-free advice, please don’t hesitate to get in touch. We’ll help you compare Company Life Insurance options to find out which is the best one for you.

You can reach us on 02084327333 or email us at help@drewberry.co.uk.

I’ve held a policy with Drewberry for several years now. They are always friendly, insightful and offer great service.

Dan Pettitt
13/01/2021
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