A relevant life plan is an in case of death in service insurance scheme for an employee paid for by the employer. It is designed to pay out a lump sum should the employee die or be diagnosed with a terminal illness.
Should a small business be looking for new high level staff it can be offered as part of a benefits package.
It is best suited to Directors wishing to provide their own individual ‘death in service’ benefits without having to take out a scheme for all employees and high-earning employees who’s ‘death in service’ does not form part of their ‘lifetime allowance’ (£1.25 million 2015/16)
This scheme is not suited to sole traders or where this is no employee-employer relationship.
The policy has tax benefits for both sides:-
- corporation tax relief (so long as the premiums are wholly and exclusively for the purposes of the business); and
- no National Insurance contributions to pay on the policy payments paid to fund the Relevant Life policy.
- no National Insurance contributions to pay on the policy payments paid to fund the Relevant Life policy;
- the policy payments won’t be taxed as a benefit in kind; and
- policy payments and benefits don’t count towards annual or lifetime pension allowances.
There are a number of rules to qualify as a single person relevant life policy.
- The policy must only provide a lump sum benefit on death payable before the age of 75.
- The plan must solely pay out on death and have no serious or critical illness cover included.
- The plan must not have a surrender value.
- Any benefit payable from the policy must only be payable to an individual or a charity.
- The main purpose of the relevant life policy should not be for the avoidance of tax.
How much cover can you have?
The sum assured with a relevant life policy is similar to that of a death in service package and it is also based on a multiple of reimbursement. For a company director the definition of remuneration is based on salary plus dividends plus bonuses etc. These multiples can vary from provider to provider and depend on the age of the director being insured.
The Relevant Life policy requires the employer to provide a trust for the benefit of the employee’s family. This will help to complete all legal requirements for a Relevant Life policy and also in most cases, it should help to alleviate inheritance tax.
How to Get Insured
You can obtain a relevant life policy from most UK insurers, however there is no set premium or cover. All things will be taken into consideration such as your occupation, general health and the lifestyle that you lead and these may affect how much an insurer will charge and the terms of the policy.
It makes a lot of sense to seek specialist advice when considering relevant life insurance. An advisor will be able to recommend the right cover for your specific circumstances and go through the savings you can make when compared to personal cover.