What is Relevant Life Insurance and how does it work? 

Relevant Life Cover is a tax-efficient way of setting up a life insurance plan, where a company sets up a policy for either employees or their directors. It pays out if the individual dies or becomes terminally ill.

Essentially the plan is owned by the business, and the premiums are written off as business expenses so it’s very tax efficient. A lot of business owners find it attractive because it means that their family’s mortgage and living costs are paid if they die.

What are the advantages of Relevant Life Cover?

The tax efficiency means that you will see a reduction of around 20% on the premium costs on a month-to-month basis, which certainly adds up over a 20-30 year policy.

The benefit of life cover generally is peace of mind that if you die or are critically ill your dependents will have their mortgage and living costs paid for.

Another advantage is that it doesn’t affect lifetime allowance. For example, if someone sets up £1 million relevant life cover and claims, it doesn’t affect pension contributions and is not taxed.

Is Relevant Life Cover a Benefit in Kind?

One of the advantages of Relevant Life is that HMRC does not see it as Benefit in Kind, so there’s no charge on it.

A Benefit in Kind is a ‘perk’ of the job that’s outside your salary and benefits package. Relevant Life Cover isn’t seen in the same way as car allowance, private medical insurance, etc. so it doesn’t affect your income and isn’t included in income tax.

Can a Sole Trader have a Relevant Life Policy?

No, unfortunately, sole traders aren’t eligible to set these up as legally there is no separation between the sole trader and their business. You need to have a limited company for Relevant Life Insurance with an employer-employee relationship.

But if you’re a sole trader there are still many options – we can support a sole trader to find an efficient way of getting the most appropriate cover, cost-effectively.

Can Relevant Life Insurance be set up as a decreasing term policy?

They can be. Relevant Life can be set up either on a level term basis or decreasing term. A level term is more common, mainly because the cost savings from putting it through the business means that level term works out slightly better. But if you want a decreasing term this is certainly an option.

How can Protection Matters help?

We help clients with any type of insurance queries, from mortgage protection and family protection to advice and guidance around inheritance tax planning. For any questions about insurance and protection, just get in touch.