Relevant Life Cover for Directors of Limited Companies

Relevant Life Cover is one of the most efficient ways to protect your family’s future in case of any mishappening.

Relevant life insurance is similar to the ‘death in service’ policy to a director or any other traditional employee. Relevant Life Policy is also termed RLP, a tax-efficient way to provide cash wages to employees of any private limited company or a contractor after their demise.

This policy is paid by the limited company where you are working as an employee. It is also written in the trust where premiums are an allowable business expense. This policy can be purchased at any time during the term of employment and can be renewed if required.

The premium amount depends on the employee’s age, tenure, and salary. The premium amount will be deducted from their salary every month.

Benefits-relevant life cover for directors

• Cash benefit payable upon the death of the insured person

• Death Benefit is based on the insured person’s salary

• Term Insurance with no medical exam

• No waiting period before payment of benefits

• Premiums are deductible under Section 80C of Income Tax Act 1961

• Premiums are not taxable income

• No surrender charges

• No pre-mature claim settlement

• No need for physical presence in India

• No restriction on the number of beneficiaries

• No restrictions on the number of policies that can be taken out

• Easy to understand form

• Flexible terms

• Can be used for both individual and group insurance

• No medical examination is required

Significant tax relief for directors

Directors who take this policy pay only half of the premium through their personal savings account. They get a full tax deduction on the balance amount. It is essential for Directors to have this policy because it provides them with financial protection against unforeseen events such as sudden illness, accidents, etc.

How Does Relevant Life Cover for Directors Could Work?

An RLP works similarly for directors as it works for other individuals. There are many different plans and types that a company owner could consider. These include:

• Single plan – A single plan covers the entire family of the insured person.

• Joint Plan – A joint plan covers two or more members of the same family.

• Group Plan – A group plan covers all the employees of a particular organisation.

• Individual Plan – An individual plan covers just one family member.

• Other Plans – A few companies offer additional coverage options like accidental death & dismemberment, disability, critical illness,

It is always better to contact known financial advisers to get the best deals on different policy types.

Life insurance to protect your business

Business owners should ensure that they have adequate life insurance cover in place to protect their businesses from unforeseen circumstances.

A good idea would be to purchase an appropriate level of cover for each key staff member and then add further coverage for those people who may become involved in running the business in the future.

If you do not already have sufficient life insurance cover in place, there are various ways you might be able to increase the amount of cover available to you.

How can key man insurance help?

Keyman insurance helps provide financial security for the surviving partners if one partner dies. This type of insurance is usually taken out by the deceased partner and named as beneficiary. If he dies without taking out the policy, the remaining partners will receive the benefits.

This kind of insurance is often recommended when the partners own a small business together. In case of any untimely demise of one of the partners, the surviving partners will be able to continue operating the business.

You may claim keyman insurance expenses when they arise, provided that you are not a majority owner of the company. The cost of key man insurance depends upon the amount of risk associated with the business. The higher the risk, the higher the premium. However, the benefit of having this insurance is that it protects your business from unexpected loss of income due to the death of one of its partners.

Inheritance Tax and Life Insurance Policy:

As discussed earlier, the policy is written into trust, and any left amount is paid in the trust, making it not eligible for income tax and any inheritance tax. The policy is payable at maturity, and the proceeds are distributed according to the beneficiaries nominated in the policy. When the policy matures, the trustee pays the premiums, and the policyholder gets back the money after paying taxes. The policyholder has no control over how much he/she receives. The policy is called irrevocable because once the policy matures, it cannot be cancelled.

 Terminal Illness Cover

The policy protects against death or permanent total incapacity caused by accident, sickness or disease. It is also possible to extend the term of the policy beyond the age limit specified in the original contract. You can choose between two types of policies- full pay and partial pay. Full pay means that the insured person gets 100% of the policy’s face value, while partial pay gives 50%. The policyholder has the right to change his/her mind about the policy at any time.


FAQs – relevant life cover for directors

Can directors claim life insurance?

Yes, a company director can claim life insurance. Company Directors can utilise life insurance through their company as a business expense. The premium amount should be added to the Director’s salary and then taxed as per the provisions of section 80C of the I-T Act.

What is the difference between ‘life insurance’ and ‘relevant life insurance?

Life insurance covers the risk of dying within a specified period, whereas relevant life insurance protects the beneficiary from loss of income due to the insured’s untimely death.

How much does relevant life insurance cost?

The premium for relevant life insurance varies depending on several factors like the insured’s age, the type of policy chosen, the sum assured, the duration of coverage and the frequency of premium payments.

Is there any waiting period for relevant life insurance?

There is no waiting period for relevant life cover. You can buy it immediately.

Does relevant life insurance cover all risks?

No. Only those risks covered by the policy are included.

Can a company pay life insurance for a director?

A company may purchase relevant life insurance for its employees but cannot make contributions towards the premiums. However, the company can deduct the premium amount from the salary of the employee.

Who pays the premium for relevant life insurance?

Is it deducted from my salary, or do I have to pay it separately?

The premium is deducted from your salary.

Why would someone want relevant life insurance?

Relevant life insurance helps you protect yourself from unexpected losses. For example, if you lose your job unexpectedly, you will still receive an income during the gap till you find another one. This is called unemployment compensation. Relevant life insurance also helps you provide for dependents in case something happens to you.

 What Is Key Man Insurance?

Keyman insurance is a term used to describe a type of insurance that pays out money to the survivors of the insured person in the event of his/her death.

Can life insurance for company directors really be tax deductible?

Yes, life insurance for company owners or directors could reduce the corporation tax by 19%.

How long does key man insurance last?

It depends upon the sum assured and the premium paid. Usually, the term of the policy is three years.