Relevant life insurance is a unique and advantageous option, especially for employees and directors of limited companies. Relevant life cover is a specialized type of policy that offers both life cover and significant tax benefits. It is an attractive choice for business protection and employee benefits.
What is Relevant Life Insurance?
Relevant life insurance is a specialized type of life insurance policy tailored for company directors, employees of a limited company, and members of a limited liability partnership. Executive Life Insurance has played a significant role in shaping these policies to be more efficient and beneficial for both employers and employees.
ELI’s approach reflects a commitment to understanding the unique needs of businesses, without compromising on the essential coverage that life insurance provides. Unlike traditional life insurance, relevant life cover is paid for by the employer, offering a tax-efficient method of providing life cover to employees.
Through firms like Executive Life Insurance, this model has evolved to become a trusted and practical solution in the corporate benefits landscape.
Key Features of Relevant Life Policies
The cornerstone of a relevant life policy is that it is an employer-funded life insurance plan. It provides a lump sum benefit to the employee’s family or designated beneficiaries if the person covered dies or is diagnosed with a terminal illness.
Tax Advantages
One of the most appealing aspects of relevant life cover is its tax efficiency. Relevant life premiums paid by the employer are usually treated as an allowable business expense. They are deductible for corporation tax purposes, providing tax relief to the business.
For the Employer
For the employer, relevant life premiums are not treated as a benefit in kind. Therefore, they do not have to pay national insurance contributions on the premiums or are subject to income tax.
For the Employee
From the employee’s perspective, relevant life cover is a tax-efficient benefit. They do not have to pay additional income tax on the premiums, as they would with a personal life insurance policy. Moreover, the lump sum benefit paid out is usually free from inheritance tax and does not count towards the employee’s lifetime allowance.
How Relevant Life Insurance Differs from Group Life Schemes
Relevant life cover is often compared with group life schemes, which are another popular form of business protection. While both types of insurance offer death in service benefits, there are key differences that set them apart.
Group life schemes typically suit larger businesses and provide coverage to all eligible employees under a single policy. On the other hand, relevant life policies are structured as individual contracts and are more tailored to specific employees or directors.
The distinction makes relevant life cover, offered by Executive Life Insurance, a versatile option for businesses seeking a more personalized approach to employee benefits. Each policy is distinct, allowing for customization that aligns with the unique needs of each employee or director, setting it apart from the broader coverage approach of group life schemes.
Advantages Of Group Life Schemes
Relevant life plans offer more flexibility than group life schemes, as they can be tailored to individual needs. They are particularly beneficial for high-earning employees who want to avoid impacting their pension lifetime allowance.
Additionally, relevant life plans are more tax efficient, both for the employer and the employee.
Setting Up a Relevant Life Plan
When setting up a relevant life plan, it’s crucial to consider how much cover is needed. This usually depends on factors like the employee’s salary, role in the company, and family’s needs. Professional advice is recommended to ensure the policy is structured correctly and offers the right level of cover.
Eligibility and Restrictions
Relevant life insurance is mainly targeted at employees and directors of limited companies. However, it’s not typically available to sole traders, as they cannot separate personal and business expenses similarly. The maximum amount of cover is usually linked to the employee’s salary and can vary based on their age and health.
Navigating Relevant Life Insurance for Optimal Benefits
Implementing a relevant life insurance policy requires thoughtful planning and an understanding of the employer and employee’s specific needs. For the employer, the key is to balance the cost of premiums with the desire to provide substantial death-in-service benefits.
For the employee, it’s about ensuring adequate life cover without incurring additional tax liabilities.
Employer’s Perspective
From an employer’s standpoint, a relevant life policy is a way to provide valuable employee benefits and a tool for efficient tax planning. The premiums paid are usually considered an allowable business expense, potentially reducing the corporation’s tax liability.
Employee’s Perspective
For employees, the appeal of relevant life insurance lies in receiving substantial life cover without any extra tax burden. The cash sum paid out in the event of their death or terminal illness does not attract UK income tax under the current regulations.
Tax Implications
The employer’s and the employee’s tax implications differ significantly between relevant life policies and group life schemes. Regarding relevant life insurance, both parties’ tax liability is generally lower than group life schemes. This difference in tax treatment can make a substantial impact, especially for higher-rate taxpayers.
The Cash Sum Benefit
One of the most significant advantages of a relevant life policy is the cash sum benefit offered to the employee’s beneficiaries. This benefit is usually free from inheritance tax and is not counted towards the employee’s lifetime allowance, making it a highly tax-efficient way to provide life cover.
The Employer and Employee Relationship in Relevant Life Cover
The relationship between the employer and the employee is pivotal in successfully implementing a relevant life plan. The mutually beneficial arrangement is a key aspect that companies like Executive Life Insurance focus on when designing their policies.
Meanwhile, the employee enjoys the advantage of receiving life cover without the burden of additional income tax or national insurance contributions.
The synergy, fostered by Executive Life Insurance, underscores the importance of a well-structured relevant life insurance plan, where the interests of both the employer and the employee are harmoniously aligned.
The approach reflects a thoughtful balance of benefits, enhancing the overall appeal of relevant life insurance in the corporate benefits landscape.
