At Drewberry, we have many clients who are set-up as a limited company either running their own small business or working as a contractor.
These professionals are used to offsetting their expenses through their limited company and many of them ask if they can do the same with their Life Insurance premiums.
If you’re the director of your own limited company, depending on how many people you want to cover you have two options when it comes to your company paying for your Life Insurance premiums.
Group Life Insurance is only typically available for companies with 5 or more employees.
For a micro business where there are not enough members for a group scheme you can take advantage of Relevant Life Insurance.
It is an individual life insurance policy set-up in a specific trust which is designed to replicate a Death in Service benefit you may receive at a larger organisation. It is still owned and paid for by the business, the premiums are tax deductible and any benefit is paid out tax free.
Where you do have enough employees for a group scheme, you may turn to Group Life Assurance. Also known as Death in Service Cover, this is company Life Insurance paid for by the business on behalf of its employees.
As a company director, if you want to roll out Life Insurance to your employees, you can add yourself to such a policy.
If you have a mortgage or a family, Life Insurance is incredibly important.
Having sufficient cover in place can offer much needed financial support to your loved ones to pay the mortgage and maintain their standard of living should the worst happen.
Without Life Insurance, most families would struggle if they lost a breadwinner – Drewberry’s Wealth & Protection Survey found that 2 in 5 people had £1,000 or less saved in the bank for emergencies.
Furthermore, 1 in 4 individuals would still have a mortgage of £100,000+ to pay if they fell ill (or passed away) right now.
How would your family cope without you?
While death is certainly something that we do not want to think about, it’s a factor that needs to be planned for. The unexpected death of the main breadwinner could leave a huge financial burden for family left behind.
For this reason, it’s not a surprise that Life Insurance remains one of the most commonly-purchased protection products on the market – purchased both personally and through limited companies.
In the table below, we’ve used our Life Expectancy Calculator to work out the risk of passing away in the next 10 years for a healthy male aged 35, 45 and 55.
Age | Risk of Passing Away |
---|---|
35 Years Old | 1 in 62 |
45 Years Old | 1 in 29 |
55 Years Old | 1 in 12 |
Our clients who contract through their own limited companies or run their own small businesses put everything they have into making their company a success.
With Relevant Life Insurance, the business can give something back in the form of peace of mind for you and your family.
After all, larger companies provide Death in Service cover to employees and these premiums are typically treated as a business expense deductible against corporation tax. Why should smaller companies miss out because, like a large chunk of UK enterprises, they don’t have enough employees to make a Group Life scheme viable?
This demand has urged the insurers to create a product called Relevant Life Insurance which is a company owned tax efficient life insurance policy.
When working out how much cover you would require it’s important to think about how much your family would need should you pass away.
When you add up any outstanding debts, living costs for a number of years and potential school fees, the size of the benefit you require can be quite surprising.
Although there is a maximum level of cover with a Relevant Life policy it is usually sufficient for most circumstances.
Each insurer has a different maximum multiple of salary but it usually ranges from 15-25 times your total salary.
Personal Life Cover
|
Relevant Life Cover
|
|
---|---|---|
Cost to Individual
|
||
Monthly Premium
|
£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
|
£100.000
|
Corporation Tax
|
-£37.28
|
-£19.00
|
Total Cost
|
£158.93
|
£81.00
|
Total Savings
|
49.03% |
By opting for Relevant Life Insurance over Personal Life Cover you would make savings of 49.03%. That is a saving of £77.93 per month or £935.13 per year.
If there is the possibility of you going back to an employed role in the future, then don’t worry. Most relevant life insurers provide a ‘continuation benefit’ which will allow you to convert a Relevant Life policy into personal Life Insurance.
This is hugely beneficial because contractors in particular tend to have a highly flexible approach to work, taking numerous employed and self-employed roles throughout their lives.
If you cancel your Relevant Life Insurance policy when you go back to an employed role and reapply for personal Life Insurance when you’re older then your premiums will be higher, even if your health hasn’t changed. This is where the continuation benefit can be really valuable.
The tax-efficiency of Relevant Life Insurance means it can offer significant savings over a personal policy.
Given the flexibility for most company directors choosing between the two is really a no-brainer.
Victoria Slade
Business Protection Expert at Drewberry
Where you have enough employees to take out Group Life Insurance, it’s a great way to protect a group of individuals at a company under the same policy.
A group policy can cover anyone who is employed by your company, including both your staff and you as a company director.
Group Life Insurance is typically one of the first employee benefits taken out by companies looking to provide some protection for their employees due to the fact it’s inexpensive and easy to understand.
Not only is it among the cheapest group products to purchase, but premiums are typically eligible for full corporation tax relief. What’s more, in most cases the benefit won’t be considered a taxable P11D benefit in kind for the employee, meaning there’s no additional tax for them to pay, either.
Employee benefits have been shown to improve staff morale and employee retention as well as helping with recruitment.
In today’s tight labour market, a benefits package is one of the ways companies can help make sure they stand out to those looking for new opportunities.
Nadeem Farid
Head of Employee Benefits at Drewberry
Group Life Insurance works very similarly to the individual Life Insurance that we’re all familiar with. If the employee dies while covered by the policy then their family receives a payout.
However, the company and not the individual owns and pays for the policy and decides the level and length of cover rather than the individual.
Just like Relevant Life Insurance, Death in Service isn’t considered a P11D benefit in kind for employees.
Also, although the employer owns and pays for the plan, the actual policy is written into a trust for the benefit of the employee’s family. Paying the benefit via a trust means the payout sidesteps inheritance tax.
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.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve 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 let us help.
Everyday we are helping company directors with their personal and business protection needs.
If you need any support please do not hesitate to pop us a call on 02084327333 or email us at help@drewberry.co.uk.
Tom Conner
Director at Drewberry
I had a great experience with Drewberry, they have a lot of knowledge and expertise with life insurance and income protection and were able to advise me and arrange suitable products. Highly recommend.
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