Working for yourself as an independent contractor can be an exciting and rewarding way to earn a living.
But it can also be risky, especially when it comes to protecting and insuring your business - and yourself and your family - from unforeseen circumstances.
While you gain a lot of freedom as an independent contractor, you take on a lot of responsibility and lose a lot of benefits that come along with being an employee.
This can include key protections like Relevant Life Insurance.
Relevant Life Cover is often used within businesses to provide financial protection against the death of a key employee like an executive, top salesperson or product engineer - as examples.
But when you’re working for yourself, is Relevant Life Cover still worth the investment?
In this article we look at the key reasons you should still consider Relevant Life Insurance as an independent contractor.
What is Relevant Life Cover and how does it work?
Relevant Life Cover works just like any other life insurance policy in that it provides a payout to a beneficiary in the event of the death of the person covered by the policy.
Unlike a regular life insurance policy it’s not taken out by an individual, but the company they work for.
In the event of a death the payout goes to the employee’s family or beneficiaries as a lump sum.
Why take this out if you’re working for your own company?
It’s a death benefit that can help your family financially
Relevant Life Cover can be used as a form of life insurance covering up to 25 times an employee’s income from salary or dividends that is provided as a lump sum payment in the event of their death.
The payment can be made to the contractor’s beneficiaries (e.g. their family) in the event of a death to cover expenses and secure their financial future.
Relevant Life Cover is more tax effective
Because the Relevant Life Cover is taken out by the contractor’s company and not them personally, it can be paid for through the company.
Relevant Life Cover is judged to be an allowable expense on a company’s annual tax return and so the premiums aren’t subject to tax like national insurance, income tax or corporation tax.
This makes it much more tax efficient than taking out a personal life insurance policy.
Relevant Life Cover doesn’t count as a benefit in kind
Because Relevant Life Cover is taken out by the company and not the employee, it’s not judged to be a benefit in kind (this is any benefit that’s deemed to add financially to an employee’s remuneration).
As a result of this distinction, it means the life cover isn’t subject to national insurance or income tax by the employee on the premiums.
The Relevant Life Cover payouts aren’t subject to inheritance tax
Because Relevant Life Cover doesn’t form part of an employee’s estate, because it’s taken out by the company rather than the individual, it means any payouts aren’t subject to any inheritance tax payments.
One of the best ways to ensure this remains the case is to set the cover up in a business owned trust when taking out the policy initially.
Relevant Life Cover is owned and paid for by the contractor’s company
Unlike a personal life insurance policy, Relevant Life Cover is owned and paid for by the company, with the payments going to the contractor’s family or designated beneficiaries in the event of their death.
This means the employee doesn’t have to worry about funding the premiums out of their own pocket because they’ll be taken out directly from the company.
Relevant Life Cover provides a financial lump sum
There’s no amount of money that can replace someone when they’re deceased, but the lump sum provided by Relevant Life Cover can help protect a deceased employee’s family financially in the event of their death.
This could be particularly helpful if they’re the sole wage earner in the family.
As we’ve discussed, Relevant Life Cover could provide a lump sum equal to around 25 times an employee’s annual income from salary or dividends, which could help protect the financial future of their family in the event of their death.
Protecting your family’s finances with Relevant Life Cover for contractors
Setting up as a contractor provides freedom and possibly higher earning potential than you could get as an employee.
But it’s important to mitigate the risk involved when it comes to protecting your family with insurance in the event of your death.
While Relevant Life Cover is taken out by companies rather than individuals, a contractor can be deemed to be an employee of their own company, so this type of policy still applies to them.
In the event of their death, the policy can be used to provide a financial lump sum to their beneficiaries that can give some relief or reassurance during what will already be a traumatic time.
If you want to know more about the benefits of using Relevant Life Cover as an independent contractor (or if you’re considering offering it to your employees) get in touch with us for more information.