Relevant Life Insurance: Executive Life

Exploring Relevant Life Insurance for UK Businesses: A Comprehensive Guide

By Alex Ogden
relevant life insurance from executive life

Exploring Relevant Life Insurance for UK Businesses: A Comprehensive Guide

Relevant Life Insurance: A Tailored Solution for Business-Related Life Cover

Relevant life insurance is one of those rare opportunities where your company can pay for a benefit that is for your family, or the family of you employees. In the event of the death of the insured person their family receive a lump sum payment, tax-free, that can be used to allow them to continue life without the deceased family member. It is not only essential life insurance, but also very tax efficient life insurance as well.

The history of Relevant life cover

Launched in 2006, relevant life cover has been around for nearly twenty years and we still find that 90% of company directors in the UK don’t know about it. The rise of the entrepreneur led to a rapid increase in SME’s and one of the benefits larger companies had that SME’s didn’t is group death in service benefits. A group death-in-service is a simple life insurance contract that would pay out to the family of that employee if they died while employed by the company. They have lots of members due to the size of the business and the business could claim tax relief on the premiums with no benefit in kind for the employees.

To help address this lack of tax efficient life insurance for smaller limited companies HMRC introduced Relevant Life Insurance. This also allowed SME’s to provide life insurance for their smaller teams with the same tax efficient benefits offer to larger companies with larger group schemes.

Delving into Relevant Life Insurance

This type of insurance is a term assurance plan tailored for UK limited company. Its core aim is to offer a lump sum benefit to the insured individual’s beneficiaries if the life insured where to pass away or are be diagnosed with a terminal illness during the policy’s term. This coverage is especially advantageous for employees and directors of limited companies and can be used as an alternative to a group scheme which has the same benefits.

Highlights of Relevant Life Policies

Tax Efficiency: The standout benefit of a this kind of life policy is its tax efficiency. Relevant life premiums are typically treated as an allowable business expense, allowing companies to claim corporation tax relief without incurring national insurance contributions. There is also no benefit in kind (BIK) charge paid by the life insured making it tax efficient both for the company and the individual.

Inheritance Tax Advantages: Payouts from a relevant life plan are generally excluded from the insured person’s lifetime pension allowance and do not form part of the deceased persons estate for inheritance tax purposes. This is possible because the benefits are paid through a relevant life trust which can be a standard discretionary trust.

Pension Lifetime Allowance Considerations: Contributions to a relevant life plan don’t impact the insured individual’s pension lifetime allowance, a vital factor for high earners who may risk exceeding their allowance.

Essential Life Insurance For Your Family: Ensuring your family can survive without your income is vital when planning your financial life. Relevant life cover is a great and tax efficient way to provide this and ensure that your families future is secured and provide lump sums for family members. The policy is commonly referred to in the industry is as death in service benefits.

Who Benefits from Relevant Life Insurance Policy?

Company Directors: Directors stand to gain significantly from relevant life cover, enabling them to provide life insurance for themselves and their team in a tax-efficient manner. The life insured will need to be a UK resident and work for or own a limited company. Both a Limited liability partnership or sole trader cannot use this kind of policy.

Employees: Employees, including those in small businesses or group schemes, can enjoy life cover as a death in service benefit, often proving more beneficial than a standard group life scheme.

High-Income Individuals: For those concerned about pension lifetime allowances and inheritance tax, relevant life cover emerges as an attractive option.

Business Protection: Although relevant life cover isn’t used for other kind of business protection purposes such as key man insurance, it sits in the suite of business life insurance that we offer to UK companies.

Implementing a Relevant Life Plan

Setting up a relevant life cover involves:

Determining Cover Needs: The initial step is to decide on the required cover. To quantify how much cover you may need you should consider factors like salary, life expectancy, and the dependents’ needs. There is no maximum amount, however insures may questions why levels of cover are required.

Establishing the Trust: Relevant life insurance policies are typically written in trust, ensuring that the payouts are not treated as part of the insured’s estate for inheritance tax reasons when the person covered dies.

Premium Payments: Premiums, paid by the business, are an allowable expense as long as the policy is used in the correct way and offer corporation tax relief.

Beneficiary Payouts: In the event of the insured’s death or terminal illness diagnosis, the beneficiaries may receive a tax-free lump sum benefit. The policy will be paid into a relevant life plan trust. There is no surrender value to the policy if the policy is canceled.

Navigating Tax Implications and Advantages of Relevant Life Insurance

Tax Aspects and Advantages of Relevant Life Insurance

Corporation Tax Benefits: As an allowable business expense, the premiums for relevant life insurance can significantly reduce a company’s tax liability. This makes it a financially savvy choice for businesses.

National Insurance Contributions: A major perk of relevant life insurance is that the premiums do not incur national insurance contributions, unlike regular salaries. This aspect further enhances its appeal to businesses seeking cost-effective life cover.

Inheritance Tax Mitigation: The policy is specifically structured to ensure that any benefits paid are done so in a manner that typically avoids inheritance tax. This feature is essential for ensuring that the full benefit amount and any sums paid reach the beneficiaries without being diminished by tax liabilities and allowing you to avoid tax.

Income Tax Exemption: For employees, one of the attractive aspects of relevant life insurance is that they don’t have to pay additional income tax or benefit in kind tax (BIK) on the premiums their employer pays. This contrasts favourably with other life cover forms where employee contributions might attract UK income tax or BIK.

The Bottom Line

To sum up, relevant life insurance presents itself as a highly beneficial and tax-efficient option for both employers and employees in the UK who need life cover. Distinguishing itself from traditional life insurance, it offers unique benefits such as corporation tax relief, no benefit in kind charge, and, most importantly, inheritance tax avoidance. For employers, it’s a cost-effective method to provide life cover, boosting employee satisfaction and loyalty. Employees, particularly high earners and company directors, benefit from securing substantial life cover without adversely affecting their personal tax or lifetime allowance. With its fusion of fiscal efficiency and thorough coverage, relevant life insurance is an outstanding choice for businesses dedicated to providing strong and advantageous support to their workforce. Always take some professional advice before taking out a policy.

Frequently Asked Questions

What is the difference between life insurance and relevant life insurance?

Life insurance is a personal policy taken out by an individual, typically requiring the policyholder to pay premiums and potentially subject to personal tax liabilities. In contrast, relevant life insurance is a corporate policy, paid for by the employer, offering significant tax benefits and not counted against personal allowances.

Who is eligible for relevant life?

Relevant life insurance is available to employees and directors of UK businesses who are also UK residents. This includes members of limited companies. Eligibility is often based on the employer’s discretion and the terms set by the insurance provider.

Who owns a relevant life policy?

A relevant life policy is owned by the employer, who is responsible for paying the premiums. The policy is written in trust, with the beneficiaries usually being the family or financial dependents of the person covered.