How does Relevant Life Cover continuation work?
A Relevant Life Policy can be a great in-service benefit for your best employees.
It’s tax efficient, both for them, and you.
It doesn’t interfere with their annual pension contribution limits.
And it can be a great way of keeping those high performers around.
But what if they do leave?
What happens to the policy then? Have you just been paying into a policy that is null and void and been a waste of money?
If you set up a Relevant Life policy for an employee who eventually decides they want to leave while the policy is still active, there are a couple of options available to you and them.
They can, if they want to, cancel the plan and they’ll no longer have the protection.
They can carry it on as a personal option.
Or they can transfer it over to their new employer (assuming they’re willing to take the policy on).
This is known as Relevant Life Policy continuation.
So, let’s have a look at how each option works.
Employee takes a personal plan
It is possible for an employee who leaves a company to take over payment of the Relevant Life Policy premiums from their old employer. However, they’ll then no longer get the tax benefits of a Relevant Life Policy.
It’s possible for the new personal cover to continue in a trust, similar to a family trust, which can help when it comes to limiting payments due on Inheritance Tax.
However, the employee will need to remove themselves as the beneficiary of the policy (because they’re now the owner of the policy) and should nominate another beneficiary.
It’s up to the employee to let the insurance provider know that they’ve left their employer within 90 days of leaving, and that they want to continue with the policy in a personal capacity.
Again, it’s important to understand they’ll lose the terminal illness cover.
In this situation, the employee would then become responsible for the premium payments.
As the old employer, you should remove yourself as a trustee on the policy and a new trustee can be appointed – such as the new employer.
Doing this simply makes things simpler later on if the employee needs to make a claim as it means you’re no longer needed to be involved.
Relevant Life Policy continuation with the new employer
Another option is for the Relevant Life Policy to transfer to your old employee’s new employer – although this is determinant on the new employer being able to offer this type of in-work benefit.
If the policy can be transferred over, your former employee or their new employer (or yourself if you’re the new employer) should get in touch with the policy provider to inform them of the switch.
This needs to happen within 90 days of the employee leaving.
The policy provider will need your details if you’re the new employer (or the details of your employee’s new employer).
For the employee, this is the best outcome, because it means they retain the tax benefits of a Relevant Life Policy, and keep the terminal illness cover as well.
It’s important to note that there should be no break in the premium payments between employers, although it’s worth checking if the policy can be suspended to get things sorted on both sides before restarting the policy under a new owner.
If the Relevant Life Policy continues with a new employer, it will also continue to operate as a trust.
If you’re the old employer, you’ll need to remove yourself as a trustee.
If you’re the new employer, you’ll need to add yourself as a new trustee of the policy.
Want to know more about Relevant Life Policy continuation?
If you want to find out more about the benefits of a Relevant Life Policy for employees and employers, then get in touch and we’ll be able to advise you more.