The Comprehensive Guide to Relevant Life Cover

Understanding the Role of Relevant Life Cover in Business Protection

In the sphere of business protection, understanding the role of relevant life cover is essential. This form of life insurance, often not given due attention, offers significant benefits and coverage, making it a key element in financial planning for businesses. Let’s delve into the specifics of relevant life cover and explore its critical role in your company’s employee benefits strategy.

What Constitutes Relevant Life Cover?

Relevant Life Cover is a distinct type of life insurance policy that employers can provide as a death-in-service benefit to their employees. It is designed to offer a lump sum to the employee’s family in the unfortunate event of the employee’s death or diagnosis with a terminal illness during the policy term.

This cover is particularly beneficial for high earning employees, sole traders, and members of a limited liability partnership.

Key Characteristics of Relevant Life Plans

• Tax Efficiency: Premiums are treated as an allowable business expense, potentially leading to corporation tax relief without burdening the employee with income tax liability.
• Flexible Cover Amount: The amount of cover can be tailored based on factors such as the employee’s salary, age, and specific business needs, providing a level of cover that is suitable for each individual.

The Benefits of Relevant Life Insurance

For Employees:

• Financial Security: Provides life cover that delivers vital financial support for the employee’s family in the event of death or terminal illness.
• Tax Advantages: The person covered benefits from no income tax on the premiums, and the payout is generally exempt from inheritance tax under a relevant life plan trust.

For Employers:

• Attracting Talent: Boosts the company’s benefits package, making it more attractive to potential and existing employees.
• Cost-Effectiveness: Recognised as a business expense, providing life insurance through this scheme is a financially prudent choice for small and limited companies.

Implementing Relevant Life Cover

Setting Up the Policy:

• Determining Cover Level: Select the appropriate level of life cover based on the employee’s role, salary, and your company’s business protection strategy.
• Medical Evidence: Medical underwriting may be required depending on the amount of cover and the employee’s age.
• Trust Arrangement: Policies are typically written in trust, ensuring that the lump sum is paid directly to the beneficiaries, thereby circumventing inheritance tax complications.

Claiming Benefits:

• Upon Death or Terminal Illness: The relevant life policy pays out the agreed sum assured if the covered person dies or is diagnosed with a terminal illness.
• Beneficiary Support: Provides both emotional and financial support to the employee’s family, helping alleviate their financial concerns during challenging times.

Analysing the Benefits of Relevant Life Cover Over Group Life Schemes

Differentiating Relevant Life Cover and Group Life Schemes in Business

While both relevant life cover and group life schemes provide critical life insurance, they cater to different needs and situations in the business environment:

• Group Schemes: Best suited for larger companies, these schemes cover numerous employees under a single policy.
• Relevant Life Plans: Ideal for smaller businesses, high earners, and scenarios where group schemes are impractical.

Strategically Implementing Relevant Life Cover in Business Planning

Advantages for Businesses

• Tax-Efficient Business Expense: Recognised as an allowable business expense, relevant life cover provides corporation tax relief.
• Protection for Key Team Members: Acts as a safety net for key employees and equity partners, particularly in limited liability partnerships and limited companies.

Employer Considerations

• Assessing Employee Suitability: Determine which employees would most benefit from relevant life cover.
• Understanding Policy Details: Get to know the full details of the policy, including premiums, coverage limits, and implications for national insurance contributions.

Relevant life cover offers businesses a valuable way to provide life cover to their employees in a tax-efficient and cost-effective manner. It not only enhances the employee benefits package but also aligns with the company’s overall business protection strategy, ensuring financial wellbeing for both the business and its workforce.

Maximising the Impact of Relevant Life Cover

The Significance of Death in Service Benefits

Death in-service benefits are essential for employee welfare, and relevant life cover is pivotal in this regard. Though similar to group life schemes in some aspects, relevant life cover offers a more personalised approach. It guarantees that, should an employee tragically pass away, their family receives a lump sum, providing vital financial and emotional support during difficult times.

Distinguishing Features from Group Life Schemes:

• Personalised Coverage: Contrary to group schemes, relevant life plans are individual policies, offering tailored coverage.
• Flexibility: They allow adaptability in terms of policy terms and coverage amounts, often linked to the employee’s salary.

Complementing Group Life Schemes with Relevant Life Cover

For businesses, supplementing their existing group life scheme with relevant life cover is an effective strategy, especially for high earners or key employees who require additional cover. This approach ensures comprehensive life cover for all employees, irrespective of their position or salary. The policies are offered by many of he uk’s leading insurance providers such as L&G, Zurich, LV and more.

Coordinating Benefits:

• Supplementary Cover: Employ relevant life cover to enhance the benefits of a group life scheme, especially for employees whose death in service benefits may not fully reflect their income.
• Tax Advantages: Both group schemes and relevant life plans offer tax benefits, but relevant life cover can provide additional tax relief, particularly in inheritance tax scenarios.

Concluding Thoughts

Relevant life cover is an indispensable component of business protection. It offers death-in-service benefits that exceed the capabilities of conventional group life schemes, providing businesses with a tax-efficient, flexible, and immensely beneficial method to protect their employees and their families.

Frequently Asked Questions

What does relevant life insurance cover?

Relevant life insurance covers the death of an employee during the policy term, providing a tax-free lump sum to the nominated beneficiaries. It also covers diagnosed terminal illnesses, ensuring financial support in such critical situations.

What is the maximum relevant life cover for HMRC?

The maximum relevant life cover for HMRC purposes typically depends on the individual’s age, earnings, and the terms set by the insurance provider. There is no set maximum limit, but it’s generally a multiple of the employee’s salary.

Who owns a relevant life plan?

A relevant life plan is owned by the employer who takes out the policy on the life of an employee. The plan is usually written in trust, with the employee’s family or nominated beneficiaries as the recipients of the cover.

Is relevant life cover a business expense?

Yes, relevant life cover is considered a business expense. Premiums paid by the employer are usually treated as an allowable business expense, offering corporation tax relief and no income tax liability for the employee.