Cost efficient life insurance for smaller businesses
What is Relevant Life?
Relevant Life Cover is a tax-efficient life insurance policy, allowing companies to offer a death-in-service benefit to its employees. It is set up by the company and pays out a tax-free, lump sum on the death (or diagnosis of a terminal illness) of the person insured. The proceeds go directly to the employee’s family or financial dependents.
Benefits to the business
- Available to businesses and companies which are too small to set up a group life scheme
- Can help small businesses to attract and retain high caliber staff
- Corporation Tax Relief (so long as the premiums are wholly and exclusively for the purposes of the business)
- No National Insurance contributions to pay on the policy payments paid to fund the Relevant Life policy
Benefits to the Employee
- No national insurance contributions to pay on the policy payments paid to fund the relevant life policy.
- The policy payments are not taxed as a benefit in kind
- Policy payments and benefits do not count towards annual or lifetime pension allowances
Example Saving: Business Director
Andrew Millar is managing director of a furniture design business in Lancashire. He already has a life policy but with he and his wife about to have their third child, he wants to increase his cover to help make sure his whole family would be financially secure if he died. His existing plan doesn’t allow him to increase his cover, so he decides to take out further cover by starting a new life policy.
Comparing the two plans that his financial adviser recommends, he doesn’t hesitate to choose the Relevant Life Plan. You can see from the following example the sums that made his decision easy.
The Relevant Life Plan is particularly beneficial for Andrew because he’s the director and shareholder of his own business, so all the savings go to him. If he were to pay for his life cover personally it would cost him £1,569.65 every year. By buying his cover through the company using a Relevant Life Plan, it only costs £800 each year. That’s £769.65 less, which is a saving of almost 50%.
The example assumes that Andrew’s Relevant Life Plan qualifies as an allowable business expense.
|Non-Relevant Life Plan Policy||Relevant Life Plan|
Insurance Contribution (assuming 2%)
|Income Tax (assuming 40%)||£689.65||None|
|Gross earnings needed||£1,724.13||£1,000|
|Employer National Insurance
Contribution (assuming 13.8%)
|Total Gross Cost||£1,962.06||£1,000|
|Less Corporation Tax (assuming 20%)||£392.41||£200|
|Tax-adjusted total cost||£1,569.65||£800|
** This example is fictitious and provided for illustration purposes only. Actual premiums will depend on individual circumstances. As with all insurance policies, there are exclusions and limitations.