Have you thought about the impact, a sudden death, or serious illness, to one of your key employees could have on your business?  Let us talk you through the benefits of Relevant Life Plans.

What is a Relevant Life Plan?

A Relevant Life Plan is a term-specific assurance plan available to employers to offer an individual death in service benefit for an employee. The employer pays into the plan which then provides a lump sum to the employees’ beneficiaries if that employee dies or is diagnosed with a terminal illness whilst working for that employer.

The policy is solely paid for by the company and functions as a way for the company to offer additional incentives to their employee. Its primary objective is as a benefit to employees but there are benefits to the business too.

A Relevant Life Plan has no surrender value and the main aim of investing in such cover should not be to avoid tax.

“Many people, have never heard of Relevant Life Plans, therefore uptake is only a fraction of those who could benefit and save on their outgoings.”

Who is eligible for these policies?

Only available to UK employees of a UK business, which can include directors of the limited companies.

Only employees of a UK Ltd company or UK LLP and salaried (PAYE) employees permanently living in the UK are eligible for this type of cover.

Directors wishing to provide their own individual death in service benefits for key employees without taking out a scheme for all employees.

High-earning employees where death in service benefits are not part of their lifetime allowance (typically £1,073,100 for 2020/21)

The policy remains valid as long as the life covered remains an employee of the policyholder. (The policy ends at the clients 75th birthday)

Who isn’t eligible for Relevant Life Plans?

Relevant Life Plans are not suitable for those without an employer-employee relationship. A

company’s shareholders only, the self-employed, freelancers, sole traders, and equity partners of a partnership, or equity members of a Limited Liability Partnership do not qualify and should seek an alternative type of life insurance.

Who is covered by Relevant Life Plans?

Relevant Life Plans are available to Limited Companies and LLPs who are UK registered and salaried (PAYE) employees who live in the UK permanently. They cover a single life per policy and will be on a ‘life of another’ basis, meaning they are taken out by the employer on the life employee.

Many company directors may have a form of personal life insurance. Most of these pay for their life insurance themselves through pre-taxed income or through their company and will incur a P11D benefit-in-kind penalty for doing so. Until 2013, limited companies could only pay for directors’ personal life insurance by taking out group life insurance. Previously, this type of cover was often restricted to companies seeking to insure ten or more employees

Relevant Life Plans enable small businesses to take advantage of the same tax breaks as Group Life Schemes in large corporations. Therefore, any UK Ltd company or LLP qualifies and can offer their UK-resident, PAYE employees the same benefits as larger businesses. The policy is valid as long as the life covered remains an employee of the policyholder. It is possible to move the policy to a new company or to transfer to personal life insurance if necessary.

“A higher-rate taxpayer can save 49 percent by paying for their personal life insurance via a Relevant Life Plan, while a basic-rate taxpayer can save up to 36%.”

A better and brighter plan!

A Relevant Life Plan is arranged on an individual basis, with the company as the policyholder, and the employee as the person insured. The company pays for the policy but unlike other group schemes, HM Revenue and Customs usually consider the premiums an allowable business expense, meaning that premiums and benefits usually also qualify for relief on national insurance, income tax, capital gains tax, and corporation tax.

Relevant life cover can also benefit smaller companies wanting to offer life insurance to their key people that might struggle to cover the costs associated with other group schemes.

Due to the way life insurance is set up under trust and the way limited companies pay for the policy, no benefit-in-kind penalties will adversely affect the employee or director.

Who benefits?

Relevant Life Plans are similar to most other life covers except they offer a tax-efficient benefit for the employer and a premium-free life insurance policy to the employee.

Although the main aim of taking out such a policy should not be to avoid tax, a higher-rate taxpayer, like a company director, could save 49 percent by paying for their personal life insurance via a Relevant Life Plan, while a basic-rate taxpayer could still save around 36 percent.

The tax efficiency of relative life cover also allows the company to set up life and critical illness insurance for its employees at a more competitive rate than the employees could find in a personal policy.

Companies can include relevant life policies as part of their wellness programme, offering employees additional incentives to stay with their employer. Employee incentives show the company cares and can often result in lower staff turnover and higher productivity.

Uptake of such policies is just a fraction of those who could benefit from them as most company directors and even many accountants, are not aware of relevant life cover.

Who provides these policies?

Relevant Life Plan is available through all leading providers. Now there are more providers offering this type of policy, increasing competition, and making premiums more attractive.

How Much Cover is available?

Just like a traditional Death in Service Policy, the sum assured with a Relevant Life Plan is also based on a multiple of remuneration. For a company director, the remuneration figure is based on salary plus dividends and bonuses etc. The multiples vary between providers and are dependent on the age of the director being insured. These multiples typically range from remuneration.

Typical relevant life examples:

The majority of clients who take out relevant life insurance are contractors, contracting through their own UK limited companies or UK LLPs. Their spouse will usually also be a director and therefore a cover is arranged for both parties in line with their insurance needs and remuneration multiples. All sorts of company directors or anyone working through their own UK-based limited company or LLP can also benefit from a Relevant Life Plan, such as tradespeople, business consultants, and doctors. Larger businesses seeking to take out three or four death in service policies for a number of their employees could also benefit from this type of policy.

Speak to us today to discuss how you could benefit from a Relevant Life Plan and make sure your business does not fall through the protection gap.