Why relevant life insurance can be a key benefit for business owners
Relevant life insurance is a type of life insurance policy that is specifically designed for business owners in the UK. It provides a tax-efficient way to provide life cover for employees or directors of a company. Here's an explanation of relevant life insurance and its benefits for business owners:
Coverage: Relevant life insurance provides a lump sum payment to the beneficiaries in the event of the insured person's death or diagnosis of a terminal illness during the policy term. The policy can be taken out on the life of an employee or a director, and the benefit is paid directly to the chosen beneficiaries, typically the individual's family or dependants.
Tax Efficiency: One of the key advantages of relevant life insurance is its tax efficiency. Premiums paid by the business are typically tax-deductible as a business expense, which means the cost of the policy can be offset against the company's profits for tax purposes. Additionally, the benefit paid out to the beneficiaries is usually free from inheritance tax as the policy is written within a trust from outset.
Individual Coverage: Relevant life insurance provides coverage for individual employees or directors, rather than as a group scheme. This is beneficial for smaller businesses that may not have enough employees to establish a traditional group life insurance scheme. It allows businesses to provide life cover to key employees, offering financial protection for their loved ones.
Tailored Benefits: Business owners have the flexibility to customize the level of cover provided by a relevant life insurance policy. The benefit amount can be set based on a multiple of income ensuring it meets the specific needs of the individual and their family. This can also help businesses to attract and retain key employees by offering a valuable benefit package.
Portability: Relevant life insurance policies can often be transferred into a personal policy, meaning the coverage can continue even if the insured individual leaves the company. This flexibility is particularly advantageous for employees or directors who may change jobs or start their own businesses. The policy can be assigned to the individual, and they can continue paying the premiums personally, ensuring uninterrupted coverage. However the terminal illness benefit can be lost by doing this.
It's important to note that relevant life insurance is subject to certain conditions and requirements set by HM Revenue & Customs (HMRC). These conditions include limitations on the benefit amount, the number of employees covered, and the purpose of the policy. Therefore, it's advisable to consult with a financial adviser or insurance specialist who can provide advice tailored to your specific business circumstances and your personal needs.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority
