Life insurance is just one of the many benefits you can offer your employees.

Having a policy in place could set you apart from other companies, and we can help you to find a Relevant Life Insurance policy that’s right for your business and staff by assessing your needs and providing a tax-efficient solution.

What is a Relevant Life Insurance plan?

A relevant life cover plan pays out a lump sum to a chosen set of beneficiaries, should the insured employee die whilst working for your company.

This sum could really help that employee’s family and/or any nominated beneficiaries.

This form of cover is also available to company directors.

Relevant Life Insurance works in much the same way as a traditional life insurance policy.

Premiums are calculated based on an employee’s lifestyle factors, their annual salary and other contributing factors like any mortgage costs or bills that will need to be covered in the event they pass away or are unable to continue working due to illness.

You can set up Relevant Life Cover either as a pre-agreed set amount (which pays out as a lump sum in the event of a death), or you can link the premiums to the annual rate of inflation so claims take into the account costs of living at the time they are paid - rather than the costs at the time the insurance was taken out.

However the policy is written, it must be put into a Business Trust, which will pass proceeds to the family in the event of a death or critical illness.

Unlike other insurance plans, Relevant Life Cover isn’t subject to income tax and can be used as a taxable expense for a business.

For this reason, Relevant Life Cover is seen as an attractive option for both small and large companies.

Is a relevant life plan cost-effective?

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 business 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 dependant - or whoever they have designated in the policy.

Are relevant life plans liable for inheritance tax?

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 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 IFA’s, who will be happy to advise on the best plan for you and assess your business needs to see if this particular policy is of any benefit to your company.

Are there any minimum or maximum terms for a Relevant Life Insurance Policy?

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 eligible for Relevent Life Insurance typically, and the maximum age is usually aged 70, but this will differ from provider to provider to it's worth shopping around to see what kind of deals are available for you.

Which employees can I offer Relevant Life Insurance?

You can offer Relevant Life Cover to any employee you want to, however, they are 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 often 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.

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How do I set up Relevant Life Insurance for an employee?

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 and paid into by the business. The final lump sum is then paid out to the employee’s family or dependants.

How much does Relevant Life Cover cost?

Like any personal insurance policy, the cost of relevant life insurance premiums are 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

What are the benefits of setting up Relevant Life Insurance cover?

There are many benefits, both to you as an employer, and to your employee when it comes to 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, or ensures 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 are more tax efficient than other forms of life cover.

Relevant Life Cover can also be used to 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.

In the worst case scenario, they at least know they will be provided for financially from the cost of the premiums.

Which is one less thing to worry about in an already traumatic time.

What level of Relevant Life Cover should you take out?

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 employee’s needs, plus taking into account what you can actually afford.

IFA Disclosure: Rigby Financial is a trading name of Rainford Financial Services Ltd, which is Authorised & Regulated by the Financial Conduct Authority No. 627944. Registered in England No. 06048581