Relevant Life Insurance
Table of Contents
Relevant Life Insurance
A Relevant Life insurance policy is a is a life insurance plan owned by a company. The policy is taken out on the life of a significant member of staff such as a director, owner or other valuable employee.
Although the policy is owned and paid for by the company, it exists for the benefit of the employee. Both the employer and employee benefit from generous tax allowances on the premium and the claim proceeds.
This policy provides additional benefits for high-earning employees who have exceeded their pension lifetime allowance, or directors who want to top-up their scheme benefits.
The right financial advice can give you the resources to protect your business and ensure its future success should the worst happen. BBi Financial Planning can advise you on the options available from the whole market.
Benefits of Relevant Life insurance
Relevant life insurance provides cost effective cover for business owners and key employees
Pay up to 49% less tax
Save up to 49% compared to an identical life assurance plan. Relevant life assurance premiums are paid for by your company but they do not have to be declared as a benefit in kind. Relevant life assurance premiums are paid for by your company but they do not have to be declared as a benefit in kind.
Tailored cover for your needs
Subject to limits of the total cover, you can have as many term assurance plans as you need. For example your mortgage, car loan and other debts can all be covered with their own plan, providing maximum flexibility for you.
Predict your cashflow
Relevant Life Insurance is a fixed term assurance plan which means you know exactly how much it will cost.
Pay less inheritance tax
Business owners and company directors often acquire more valuable estates. A Relevant Life assurance plan can pay a claim free from inheritance tax.
Lower business tax
Premiums for Relevant Life assurance are considered an allowable expense for the purposes of corporation tax which means you can reduce your tax bill.
Features of a Relevant Life Plan
- Relevant Life insurance is a fixed-term life assurance plan.
- Premiums are guaranteed not to change once the plan starts.
- Benefits are treated as a tax-deductible expense for business purposes.
- A Relevant Life insurance plan is not treated as a benefit in kind.
- Group cover is available from some providers.
- Relevant Life insurance is intended for business owners and directors who are paid a salary via PAYE (pay-as-you-earn).
- Cover is not available for sole traders or other self-employed individuals.
How are the premiums calculated?
- How much cover do you need?
- How long do you need the cover for.
- How old are you?
- What health issues have you had, or are likely to have?
- Do you have a family history of health conditions.
- As with all life insurance policies, your application may be subject to medical and financial underwriting.
- Medical underwriting means an assessment of your health, medical history, and lifestyle factors, among other things.
- Financial underwriting means an evaluation of your company finances to justify the sum assured when this is particularly large.
Frequently Asked Questions
Is Relevant Life insurance a benefit in kind or P11D benefit?
The premiums for relevant life insurance are paid for by the business, but do not count as a benefit-in-kind.
This is one of the major tax benefits of Relevant Life insurance.
Can a Relevant Life policy include critical illness?
Some insurance companies claim that critical illness cover can be included in a Relevant Life policy. To the best of our knowledge, HMRC has not signed off on this and many insurance companies agree with this view. The tax implications of getting this wrong are significant, so we will not recommend relevant life insurance with critical illness.
Can you have a joint Relevant Life policy?
Relevant life insurance policies can only cover one person.
What about Relevant Life insurance tax treatment?
Relevant Life is a very tax efficient form of life insurance. The premiums do not count as a benefit in kind (also known as a P11D benefit) for the individual covered. Premiums also count as a legitimate expense for the purpose of corporation tax. Establishing a proper trust will enable any claim to be paid free of inheritance tax.
Can I have a decreasing Relevant Life plan?
Yes, some insurance companies can write a Relevant Life policy on a decreasing basis, similar to a Mortgage Protection Policy.
Can I have a renewable Relevant Life policy?
Yes, some insurance companies provide a renewable Relevant Life policy.
Can I have an increasing Relevant Life policy?
Yes, some Relevant Life policies can include indexation, where the cover increases each year in line with inflation. The cost is also recalculated each year based on the new sum assured.
What is the maximum cover I can have with Relevant Life?
Most life insurance does not have a theoretical upper limit, but because of the tax benefits of relevant life insurance HMRC has set upper limits on the cover.
- If you are aged 16-39 the maximum cover is 30x your total remuneration.
- If you are aged 40-49 the maximum cover is 20x your total remuneration.
- If you are aged 50+ the maximum cover is 15x your total remuneration.
HMRC defines total remuneration to include:
- Basic salary
- Bonuses
- Dividends
- Other benefits-in-kind
Additional underwriting requirements will apply as cover increases, and these could be financial as well as medical.
How are the benefits paid?
In the event of a claim, the benefits are typically paid as a single lump sum to a designated beneficiary. Payments are usually made by bank transfer.
Can Relevant Life be used for shareholder protection?
No. Relevant Life insurance is intended to provide personal benefits to key individuals at the expense of the company. Shareholder Protection plans are more complicated to arrange as more people are involved.
Do I have to use a trust with a Relevant Life policy?
Using a trust as part of your Relevant Life insurance is essential to ensure you do not pay tax on any claim. You won’t be able to start your policy without the trust in place.
The standard trust wording for Relevant Life insurance is based on a discretionary trust. This places the claim benefits outside of your estate for the purposes of inheritance tax, meaning your loved ones can benefit from the full value of your plan. As long as the correct trust is in place, there will not be any tax to pay in the event of a claim for relevant life insurance.
