Can My Limited Company Pay for My Life Insurance?

Do I Need Life Insurance?

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?

The Risk of Passing Away…

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.

What is Relevant Life Insurance?

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.

Key Points of Relevant Life Insurance

• The person covered on the policy is a company director or employee of the company.
• It’s paid for by your company and the premiums are a tax-deductible business expense (subject to agreement from your local tax office).
• It will usually be set up as a level term life policy to pay a fixed lump sum on death (a small minority offer Relevant Life Insurance on a decreasing basis, but this is very rare).
• It is written into trust – this will avoid inheritance tax and waiting for probate while making sure the money goes to who you want it to.
• It is not classed as a benefit in kind for company directors or employees.

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.

How Much Relevant Life Cover Can I Have?

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.

Example Savings With Relevant Life Insurance

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.

What if I Go Back to Employment?

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

Group Life Insurance Explained

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.

• Group Life Insurance pays a lump sum benefit to an employee’s family if they die while they’re employed by your company. For this reason, it’s also known as Death in Service Cover.

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

How Does Group Life Insurance Work?

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.

Getting Company Life Insurance 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 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.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 2850 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

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