Relevant life cover
There are lots of options when it comes to life cover and knowing what cover is best for you and your circumstances can be difficult to navigate.
One of the lesser-known insurances is Relevant Life cover but it is one of the most tax efficient for certain businesses and individuals. It is like normal life insurance, but the main difference is the policy is taken out and paid for by your employer on your behalf.
The amount of cover may be dictated by your individual liabilities (mortgages etc), salary, dividends, and any other amounts your family may require in the event of your death. Whereas traditional death-in-service scheme offer a multiple of salary as cover, Relevant Life can offer more cover in keeping with your needs.
How does it work?
A relevant life plan offers a way for an employer to arrange certain cover on the life of an employee, including directors. There must be an employee-employer relationship.
It’s designed to pay a lump sum benefit payable to the employee’s family if the person covered dies or is diagnosed with a terminal illness, whilst employed during the term of the policy.
If you leave your employment, it is possible for a new employer, or you personally, to continue the cover.
There are certain criteria that need to be met such as any policy can only run to age 75 of the employee and that it can only provide life cover and have no other benefit.
What are the benefits?
There are various benefits for employees and businesses alike. It can provide cover for employers who do not have enough employees to affect a group life scheme.
For employees and more specifically, Company Directors, Relevant Life is an attractive route as life cover can be taken out by the company rather you personally and the premiums are not treated as a benefit in kind. This means that for the individual, no income tax is due, and it also counts as a tax-deductible expense for the business.
For higher earners and individual with large pensions, this type of policy is a ‘non-registered’ scheme meaning that any benefit would not be calculated alongside your pension benefits for lifetime allowance purposes. This is compared to holding a traditional group life scheme where any pay-out will be classed as a pension benefit for tax purposes and will be combined with your pension benefits when calculating your lifetime allowance meaning that additional tax may be levied on your death.
Relevant life plans can also sit alongside a group life scheme if the employer is willing to fund it.
Any plan will also need to be written into trust meaning that any pay-out will be received by the beneficiaries immediately and will be outside of the estate for Inheritance Tax purposes.
Is this something I should be taking out?
Getting the right cover for you and your family is a critical component in underpinning your financial security for your family.
Relevant Life cover is another option which, especially if you are a Company Director or someone with a large pension fund, you should be considering given its benefits.
If this is you, it is worth speaking to your employer to see whether they will take this out for you or seeking financial advice to see if this is appropriate for your circumstances.
The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.
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