Can my business provide security for my family in the event of my death?

Published by Kim Williams on 29 May 2019

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The simple answer is yes!

You can put in place a tax efficient life insurance policy, set up by your business, which pays out a tax free lump sum on your death (or diagnosis of a terminal illness). These proceeds will be paid to your family or financial dependants.

You may have a company death in service scheme, but what many people do not realise is that these types of policies are written under pension rules. So, any claim will be added to the value of your pensions and could be subject to a tax charge if the value exceeds the lifetime allowance of £1,055,000 (2019/20 tax year).

The alternative option is to establish an individual life insurance plan, usually suitable for high earning employees, who might have exceeded their pension lifetime allowance.

This life insurance has the following benefits and features:

  • Premiums are a tax deductible business expense (unlike some policies which are taxed as a benefit in kind).
  • Monthly and guaranteed premiums.
  • Benefits are usually free from inheritance tax.
  • Maximum cover of £10m is available.

How much does it cost?

Like all life insurance, the monthly premium is dependent on age, level of cover, termination age and your health.

For illustration purposes, a 40 year old could obtain life cover for £400,000, which ceases at age 65, for £22.15 a month.

Please note that this premium is based on someone who is in good health, and will be subject to medical underwriting.

So, what’s the catch?

  • This policy must be written into a discretionary trust. This is good tax planning, but some people find trusts complicated.
  • The life insured must be a UK resident and an employee of the UK business.
  • Cover isn’t available to sole traders or partnerships, however it could be set up by a PAYE employee of a sole trader.

If you would like to discuss this with one of our financial planners to obtain a quote or more information, please contact Kim Williams here or on +44 (0)330 124 1399.

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