Relevant Life Cover
Life cover for individuals with tax advantages included….
To put it simply, relevant life cover is a single person death in the service life policy. Some providers will also offer the option of adding significant illness cover making this an even more comprehensive policy.
Relevant Life is especially valuable for the following groups of people: –
- Small Businesses
- High Earning Employees
- Members of Group Life Schemes wishing to top up their cover
If set up correctly it has much more favorable tax advantages than if the individual paid for the cover themselves.
Seeking professional advice should always be the preferred starting point to ensure your eligibility, affordability, and health is assessed properly at the outset.
Here are the main reasons individuals take out relevant life cover: –
- Directors with a need for individual life cover
- Directors with dependents
- Directors who wish to save tax
- High earners who are a member of a registered death in a service group scheme
If you are in any of the above categories, relevant life cover is likely to be perfect for you.
Relevant life cover does not count as a P11d benefit to the individual.
Some group life cover schemes (death in service) are very restrictive and may not include bonuses, dividends, or overtime meaning the cover is not a realistic amount of the actual financial implications of the death occurring whilst in service. Relevant life can be used to top up or replace this benefit.
High earners – watch out! Registered group life schemes (death in service) fall under pension legislation. This means that in the event of a claim, the value of this is added to the value of the individual’s pension benefits. Anything over the lifetime allowance (currently £1.073m) would then be taxed at 55%! Any payment from a relevant life policy that is set up correctly would not be included within the calculation and therefore could save a fortune in tax.
Additionally, some high earners might also have protected their lifetime allowance to avoid the lifetime allowance tax charge. However, in return for this enhancement, they often can’t make any further contributions to their pension. Doing so would lose protection. Joining a registered group life scheme would count as an additional pension contribution, taking away the protection as a consequence. You cannot reverse this once it has happened, plus you could be fined if you don’t inform HMRC. Relevant life cover does not count as a pension contribution and would stop this happening.
As an individual, to pay a £200 per month life cover policy you would need to earn significantly more as a gross figure. This is because you would pay income tax and national insurance (NI) on this earned income.
Your company can pay for the Relevant Life policy and have the premium offset against the taxable profit of the business.
Ask yourself; ‘Would I rather have my life insurance put through the business as a tax-deductible expense or pay it personally out of my net pay?’
Seeking professional advice is key to ensure the policy is set up correctly. This way, the company, the individual life assured and their family will receive the best possible outcome.
Natasha has achieved Chartered status and is a senior member of the team at Hawsons Wealth Management. You can contact her or the team at [email protected] or 0114 2296557.