Relevant Life Insurance

It depends; relevant life insurance policies are not actually classed as a benefit in kind for the employee.

But as an employer, you could offset this policy as a deductible business expense.

Relevant Life Insurance will be written into a discretionary trust, which pays out a tax-free lump sum in the event of the death of an employee covered by the policy.

The payment will be made to the employee’s family or financial dependent, or whoever they have designated in the policy.

The plan is a trust and should not form part of an employee’s estate, making it exempt from inheritance tax.

However, there may be some instances when the tax is deductible.

If you’d like to discuss a relevant life plan in further detail, please get in touch with one of our highly experienced IFAs. They’ll be happy to advise on the best plan for you and assess your business needs to see if this particular policy benefits your company.

Generally speaking, the minimum term for a Relevant Life Insurance policy would be two years, up to a maximum of 40 years from the point the policy is taken out.

Only employees aged 18 and over are typically eligible for Relevant Life Insurance, and the maximum age is usually 70, but this will differ from provider to provider. It’s worth shopping around to see what kind of deals are available for you.

You can offer Relevant Life Cover to any employee you want. However, it’s typically only used for a few types of employees.

• Company Directors – Not shareholders in the business but significant decision-makers or leaders who have a big impact on the day-to-day running of the company.
• Higher-earning employees – Relevant Life Insurance is typically offered to high-earning employees as a tax-efficient benefit as part of their employment. High earners are usually offered relevant life cover because it can help to top up their benefits if they exceed their personal pension annual allowance through their regular salary.
• Key employees – If you have employees who are of particular importance to the business, relevant life cover is usually used as a benefit as part of their employment.

Relevant Life Cover is typically set up in one of two ways:

Individual cover: The employee owns and pays into the policy, which pays out in the event of their death or a critical illness.

Life of another: The cover is taken out by the business, and the employer pays into the policy. The final lump sum is then paid out to the employee’s family or dependents.

Like any personal insurance policy, the cost of relevant life insurance premiums is dependent on the personal lifestyle factors of the individual and the level of cover you want to take out.

The typical lifestyle factors: age, lifestyle, health and pre-existing conditions will impact the cost of premiums.

Relevant Life Cover plans also typically take into account the annual salary of the relevant employee and use a multiple of that annual salary to calculate the cost.

For example, 10 times the employee’s annual salary of £40,000, who is aged 25, 35 and 45, who is a non-smoker and in good health.

• Example cover cost 1 – £8.96pm
• Example cover cost 2 – £13.84pm
• Example cover cost 3 – £27.89pm

There are many benefits, both to you as an employer and to your employee, when taking out Relevant Life Cover.

Below are some of the main benefits.

For an employer:

Relevant Life cover can be used as a tax-deductible business expense and isn’t subject to national insurance contributions or corporation tax.

For a small business, this type of cover can be more cost-effective than taking out a group policy. It can also ensure your employees have some sort of cover if your business isn’t big enough to qualify for a group policy.

Relevant Life Cover can be seen as an attractive benefit for high-earning employees, helping you attract and retain the best people.

For an employee:

Relevant Life Cover gives your employees access to insurance without paying premiums through their salary.

It can be used by higher earners instead of joining a group life scheme, which could exceed their annual pension allowance. Relevant Life Cover means they wouldn’t face the same level of tax when they access their pension.

Insurance premiums aren’t subject to National Insurance contributions (by the employee, or you as their employer), so they are more tax efficient than other forms of life cover.

Relevant Life Cover can also be used to cover terminal illness, so they’ll still receive a lump sum if they are diagnosed with a terminal illness.

Having this type of insurance cover in place also provides peace of mind to your employee’s family, should they experience death in service.

In the worst case scenario, they at least know they will be provided for financially from the cost of the premiums. It is one less thing to worry about in an already traumatic time.

Policies are usually calculated as a multiple of an employee’s annual salary.

For example, 15 times an annual salary of £60,000pa.

How much cover you take out depends on what is best for your business and your employees’ needs, plus taking into account what you can actually afford.