If you run your own business and have personal life insurance in place to financially protect your family, or are considering this, did you know that you could make a substantial tax saving on your premiums by taking out ‘relevant life insurance’?
What is Relevant Life Cover?
Relevant Life Insurance is similar to other types of life cover offered in the UK (Level-term and decreasing-term life cover) because it pays out a lump sum benefit if the person covered dies within a set period. However, a major difference is the cost is met by your business, which means that it’s eligible for valuable tax savings!
Relevant life insurance premiums are tax deductible as a business trading expense, and because they are not treated as a P11D, (benefit in kind) for the employee there are no personal tax implications.
That’s not all!
Setting up a relevant life policy has positive tax and national insurance outcomes for your business and unlike a traditional employer funded ‘death in service’ scheme the potential claim proceeds do not have any implications where pension funding is concerned.
It’s a tax saving in one place that doesn’t have a knock-on effect that costs you more elsewhere!
Savings of up to 50%
Company directors paying 40% personal income tax could save up to 50% on their life insurance premiums when compared to having personal life cover in place. This means that someone with a £50 a month personal life policy could save £7,800 over a 25 year term, by taking out relevant life cover instead.
An important part of taking out any form of life cover is having the policy written under a suitable trust, which has added benefits when a claim is made. When setting up relevant life cover, the policy must be written under a specialist ‘relevant life trust’, which an advisor should do free of charge.
The trust behaves in the same way as a discretionary trust for personal life cover. It ensures that any claim is paid promptly to the listed beneficiary without having to wait for probate, and also that the policy benefits remain outside of your estate, and therefore, are not liable for inheritance tax.
There are of course certain conditions for a relevant life plan. For the plan to be paid through your business it must only cover the insured employee for death or terminal illness, disability or critical illness cover cannot be included.
Relevant Life plans are also far more generous when it comes to the amount of cover that you can arrange. Depending on age, up to 20 times remuneration can be covered compared to just 4 times salary with a death in service scheme.
How can I take out this cover?
Most protection insurers in the UK offer relevant life insurance, but the premiums and cover you are offered can vary greatly between providers. Factors such as your occupation, general health and the lifestyle that you lead can all have a significant impact on how much an insurer will charge and the terms of the policy.
It makes a lot of sense to seek independent specialist advice when considering relevant life insurance. We at Core Financial would be happy to recommend the best value cover for your specific circumstances and explain the savings you can make when compared to personal cover.