We deal with thousands of small- to mid-size company owners, and many of them ask, “what is the perfect blend of life insurance for company owners in the UK?”
It’s a great question, and there is not a one-size-fits-all answer, but most directors need some form of life insurance. If they die, the money is then used to limit the financial impact on their families. The second policy is income protection: if they can’t work but don’t die, their families still need financial protection to meet their obligations while they recover.
Having a policy that pays out if you die or are unable to work due to sickness or accident provides a wide range of cover and is perfect for directors, as they are often the main breadwinners in the family.
How it saves tax at the same time
The great news is that insurers are now wise to the needs of company owners and have created bespoke products that can provide the protection they need above, while also reducing corporation and income tax.
Relevant life insurance
To meet the need for life insurance, a policy called relevant life insurance is used. Relevant life is one of the most tax-efficient personal expenses you can pay for as a business expense. The business pays the premiums, and HMRC treat this as an allowable expense. This means the business saves corporation tax, the life assured saves on income tax as the premiums are no longer paid personally, and to top it off, there is no benefit in kind to pay either.
When comparing paying for life cover personally or through a relevant life insurance policy, the tax savings for many reach tens of thousands, and their family receives any payout tax-free.
Executive Income Protection
The second part of creating a high level of cover is income protection, and again, insurers have a bespoke solution for business owners.
The policy is called executive income protection and insures 80% of the life assured’s salary and dividends. For directors who also employ a spouse and issue dividends to them, the joint income of both people can be covered under a single policy.
As with relevant life, executive income protection can be paid for as a business expense, which further reduces corporate tax and income tax, and has no benefit in kind. Making it another very tax-efficient policy for company directors.
Bringing it all together
So, what is the perfect balance of protection for UK company directors? Protection in death and in life, in a way that also reduces tax at the same time. Now is the time to review your current protection – contact our team of specialist advisers today to discuss your protection needs.
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