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Relevant life insurance policies provide a cost-effective and tax-efficient alternative to full life insurance for small businesses.
The cover allows them to offer a death in service benefit which pays out the employee's beneficiaries should they pass away during service. Relevant life insurance is useful for smaller businesses who are not large enough to warrant a group life scheme but still want to provide a perk for their workforce.
The employee is assessed based on the amount of cover required, their age, health and lifestyle.
The policy is then paid for by the company rather than the individual. If they die during their time with the company, a tax-free payout is issued to their beneficiaries - typically their family members. The policy can be fixed at a set level with fixed premiums or can be linked to inflation whereby both the lump sum and premiums would increase over time.
Some policies will also pay out in the event of a terminal diagnosis, assuming the employee remains with the company, and the policy is still in place. You may also find that some policies allow continuation should the employee leave or change employment.
No, relevant life cover is not a benefit in kind, so the recipient will not need to pay income tax on the value. Businesses can also claim the premiums as an expense to reduce their tax bill.
As with traditional death in service policies, the lump sum payable with a relevant life cover policy is based on a multiple of the employee's remuneration.
This calculation may also include dividends and bonuses. Depending on the provider, the policy and the age of the individual, these multiples vary from 10 to 25 times their remuneration.
There are potentially significant tax savings with relevant life insurance for both the individual and the company. They are not classed as a benefit in kind, so no income tax is payable. Assuming the policy is written into a trust, this could be used to cover an inheritance tax bill in the event of a payout.
For the company, the premiums can be classed as an expense against corporation tax liability.
Our team of experienced advisors can help you to get an insurance policy that is perfect for you. By working with an insurance expert, you ensure that your cover is precisely tailored to your needs while remaining cost-effective. Get in touch today to get started!
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