What is Relevant Life Insurance
4th of October 2024
4 minute readRelevant life insurance offers a tax-efficient way for businesses to provide life cover for their employees. If you’re a business owner or an employee wanting extra life protection, we’re here to help you understand how relevant life insurance works and why it might be a good choice.
Relevant life insurance is a policy that allows employers to provide life cover for their employees. It pays out a lump sum to the employee’s family if they pass away, offering a tax-efficient benefit without needing group life insurance schemes.
Relevant life insurance is ideal for small businesses or directors who want to offer life cover. In this guide, we’ll explore the benefits, who can apply, and how this insurance can save you money compared to other options.
What is Relevant Life Insurance?
Relevant life insurance is a type of life cover designed specifically for small businesses, company directors, and high-earning employees. It’s a policy that an employer can set up to provide life insurance benefits for their employees. If the covered employee dies during the term of the policy, the insurer will pay out a lump sum to the employee’s family or designated beneficiaries.
One of the key features of relevant life insurance is that it’s tax-efficient. Unlike other life insurance policies, relevant life cover is paid for by the business, but the premiums don’t count as a taxable benefit for the employee. This means that both the employer and the employee can enjoy significant tax savings compared to personal life insurance policies.
Relevant life insurance is particularly popular with small businesses and directors of limited companies, as it provides the life cover benefits of larger corporate schemes without needing to join a group life policy. It’s also a great option for companies that want to offer key employees a valuable benefit without increasing their salary or adding taxable perks.
Who Can Get Relevant Life Insurance?
Relevant life insurance is designed for businesses that want to provide life cover for their employees. This can include:
- Small business owners: If you run a small business with only a few employees, relevant life insurance allows you to offer life cover to your team without the complexities of a group scheme.
- Company directors: Directors of limited companies often use relevant life insurance as a way to take out life cover through their company. This helps reduce personal tax costs, as the company pays the premiums.
- High-earning employees: For employees who have reached their pension limits, relevant life insurance provides additional life cover benefits without affecting their pension contributions.
- Contractors and freelancers: If you work through a limited company, relevant life insurance allows you to take out personal life cover in a tax-efficient way.
It’s important to note that relevant life insurance is only available for employees, not sole traders or partnerships. The business must pay the premiums, and the policy should provide a benefit to the employee’s family or dependents.
What Are the Benefits of Relevant Life Insurance?
Relevant life insurance offers a range of benefits, making it an attractive option for both employers and employees. Here’s why it’s a great choice:
| Benefit | Description |
|---|---|
| Tax Efficiency | The premiums are usually tax-deductible for the business, and they don’t count as a taxable benefit for the employee, saving money on taxes. |
| No Impact on Pension Limits | Unlike some life cover policies, relevant life insurance doesn’t affect the employee’s annual or lifetime pension allowances. |
| Employee Benefit | Offering relevant life insurance is a great way to provide employees with added security, helping to attract and retain top talent. |
| Personal Life Cover | Directors of limited companies can take out personal life cover through their business, reducing personal tax costs while providing essential cover. |
These benefits make relevant life insurance a popular choice for small business owners and directors who want to offer life cover in a way that’s both financially efficient and valuable to their team.
How Does Relevant Life Insurance Compare to Other Policies?
Relevant life insurance differs from other life insurance policies, particularly in how it’s paid for and its tax advantages. Here’s how it compares:
| Feature | Relevant Life Insurance | Personal Life Insurance |
|---|---|---|
| Who Pays the Premiums? | The business pays the premiums. | The individual pays the premiums from their own income. |
| Tax Efficiency | Premiums are tax-deductible for the business and don’t count as a benefit. | Premiums are paid from post-tax income, and there are no business deductions. |
| Benefit Payable | Paid to the employee’s family if they pass away. | Paid to the individual’s beneficiaries. |
| Impact on Pension | No impact on pension contributions or limits. | May affect pension allowances if life cover is linked to a pension scheme. |
As you can see, relevant life insurance is a more cost-effective option for employees and directors who want life cover without the tax burden that comes with personal policies. It’s also more flexible than group life schemes, allowing businesses to offer tailored cover to specific employees.
FAQ
What is relevant life insurance?
Relevant life insurance is a life cover policy that employers can take out for their employees. It pays out a lump sum to the employee’s family if they pass away, and the premiums are tax-efficient for both the business and employee.
Who can get relevant life insurance?
Relevant life insurance is available for businesses with employees, including small business owners and directors of limited companies. It’s not available for sole traders or partnerships.
Is relevant life insurance tax-efficient?
Yes, relevant life insurance is tax-efficient. The premiums are usually tax-deductible for the business, and they don’t count as a taxable benefit for the employee.
How is relevant life insurance different from personal life insurance?
Relevant life insurance is paid for by the business, and the premiums are tax-deductible. Personal life insurance is paid for by the individual, and there are no tax benefits for the business.
Does relevant life insurance affect my pension?
No, relevant life insurance doesn’t affect your pension contributions or limits. It’s a separate benefit that doesn’t impact your pension allowance.
Relevant life insurance is an excellent choice for small businesses, directors, and high-earning employees who want tax-efficient life cover. By understanding the benefits and how it compares to other policies, you can make an informed decision that provides valuable protection for your family and your business.