Look after your loved ones after you've gone, and give yourself peace of mind with a relevant life insurance policy.
Relevant life insurance is a type of death-in-service benefit paid for by the business. Often taken out by company directors due to the numerous tax benefits, it's designed to allow smaller businesses to protect their employees instead of a group life scheme.
If the insured employee or director dies during the cover term, the policy will pay a lump sum to the deceased's family. Relevant life insurance also will payout when the insured is diagnosed with a terminal illness with a prognosis of fewer than 12 months to live.
Many businesses wish to provide their employees with a death-in-service benefit to help support their families should the worst happen. However, if you have less than five employees, you'd be unable to set up a group life policy. Additionally, relevant life cover is highly tax efficient, making it an excellent choice for directors of limited companies who want to protect themselves and their families while minimising their tax liability.
Relevant life cover is an excellent option for high-paid employees as, unlike a group policy, the plan's benefit don't count towards their lifetime pension allowance.
Here's how a typical policy would be set and run:
There are numerous benefits of relevant life insurance for employees, directors and the business.
If an employee insured through relevant life cover leaves the company, they would typically lose their cover. However, they may be able to take ownership of their policy and ask their new employer to take it on. But, if their new employer refuses, they would have to pay the premiums themselves to remain covered.
A relevant life plan provides life cover for employees and directors in your company. If a person covered dies or is diagnosed with a terminal illness (defined as a life expectancy of twelve months or less), your plan will pay out a lump sum.Relevant life premiums do not count towards your pension lifetime allowance.
The relevant life cover market is highly competitive, so insurers offer a range of optional extras to win your custom. These may include:
In most instances, your relevant life insurance policy will pay out quickly, with minimal stress. However, not all causes of death are covered by such plans.
Exclusions may include:
While eligibility differs depending on what insurance provider you choose, in most cases, any employee is eligible for a relevant life policy. However, there may be age restrictions and a minimum or maximum amount of cover you can purchase. For example, a policy will have to pay out or lapse before the employee reaches 75 years of age.
Sole traders, limited liability partnership members and partners can also be eligible for relevant life cover, but only with some providers.
For help with eligibility, talk to our team of expert advisers today.
The cost of your plan depends on several factors, including:
Your level of cover is entirely up to you, based on what you want to offer your employees. However, insurers recommend choosing a cover amount based on each employee's salary and age. The lower their age, the higher the multiple of their salary.
For example, employees under 29 would be covered for 35x their annual salary, staff in their 30s 30x their salary and so on until employees over 60, who get covered for 15X their remuneration.During the life policy term, employers can increase the amount of cover if they wish. Some employees may require more cover if they buy a home, get married, have children or achieve a higher salary, for example.
Ensure the amount of cover you purchase, and the premiums you pay are appropriate for you and your business.
The two main types of relevant life cover are level cover and inflation-linked cover.
The favourable tax implications of relevant life cover are one of the main reasons companies opt for this type of insurance over a group life scheme.Here are three things you need to know about relevant life insurance and tax:
