What is relevant life insurance?
Relevant life insurance policies offer a cost-effective and tax-efficient alternative to traditional life insurance for small businesses.
This cover provides a death in service benefit, paying out to an employee's beneficiaries if they pass away during their employment. It's particularly beneficial for smaller businesses that may not be large enough to implement a group life insurance scheme but still want to offer this valuable perk to their employees.
How does relevant life insurance work?
The employee is assessed for relevant life insurance based on factors such as the required cover amount, their age, health, and lifestyle.
The policy is paid for by the company, not the individual. If the employee passes away while employed, a tax-free payout is issued to their beneficiaries, typically family members. The policy can be structured with fixed premiums and a set lump sum or linked to inflation, where both the payout and premiums increase over time.
Some policies may also pay out in the event of a terminal diagnosis, provided the employee remains with the company and the policy is active. Additionally, certain policies offer the option for continuation if the employee leaves or changes employment, ensuring continued coverage.
Is relevant life cover a benefit in kind?
No, relevant life cover is not considered a benefit in kind, so the recipient will not need to pay income tax on the payout value. Additionally, businesses can typically claim the premiums as an allowable expense, helping to reduce their overall tax bill. This makes relevant life cover both a tax-efficient benefit for employees and a cost-effective option for businesses.
How much does relevant life cover pay out?
As with traditional death in service policies, the lump sum payable with a relevant life cover policy is based on a multiple of the employee's remuneration. This calculation may also factor in dividends and bonuses.
The multiple can vary depending on the provider, the policy terms, and the employee's age, typically ranging from 10 to 25 times their total remuneration.
Is relevant life insurance worth it?
There are potentially significant tax savings with relevant life insurance for both the individual and the company. Since it is not classed as a benefit in kind, no income tax is payable by the employee. If the policy is written into a trust, the payout could also be used to cover an inheritance tax bill, offering further tax efficiency.
For the company, the premiums can be treated as a business expense, reducing the company's corporation tax liability. This makes relevant life insurance a tax-efficient option for both employers and employees.