Post Topics

What is Relevant Life Insurance?

Why are they Tax Efficient?

Who can benefit?

Relevant Life Policy Trusts

Who Cannot Take Relevant Life Cover?

What Happens if Things Change?

Here’s How We Work

 

1. You can either request quotes or contact us to discuss the protection you need.
2. We’ll provide you with competitive and customized solutions that cater to your specific requirements.
3. Once you give us the green light, we’ll take care of all the paperwork and even put the policies in trust if required.

What is Relevant Life Insurance?

As a small business owner, providing financial benefits to employees is not always easy, especially in terms of life insurance. However, relevant life insurance is a smart solution for those with smaller offices who want to offer this type of benefit. It is an affordable way to ensure that staff members and directors are taken care of if they pass away or are diagnosed with a terminal illness.

Relevant life cover is an increasingly popular type of life insurance policy that is set up and paid for by companies on behalf of their staff members or directors. The purpose of this policy is to provide death-in-service benefits, which means that in the event of the covered individual’s death, the policy will pay out to the beneficiaries named by the staff member or director. Additionally, some relevant life policies also cover terminal illness diagnoses.

One key benefit of relevant life cover for businesses is that it can be treated as an expense, which can reduce a company’s corporation tax bill. Furthermore, offering this type of benefit can be a useful way of attracting and retaining staff, particularly in competitive industries where employees are looking for companies that offer more than just competitive salaries. It’s essential for companies interested in setting up relevant life insurance to speak with an independent specialist who can provide tailored advice specific to their business needs.

Why are they Tax Efficient?

Tax relief on premiums for life insurance policies is granted by HMRC, and this has been clarified since April 6th, 2006. To be eligible for this tax relief under the “wholly and exclusively” rules, premiums paid by an employer should be viewed as a part of their employee’s remuneration. Remuneration packages don’t only include salaries but also other benefits, such as death-in-service coverage or pensions.

A remuneration package provided by an employer should be reasonable in terms of the employee’s contribution to the business and compared to similar businesses’ packages. This is outlined in the HMRC’s business income reference manuals, specifically in Business Income Manual – BIM 45530 that deals with life policies on employees. Employers must ensure that they are following these guidelines to ensure that their employees receive adequate compensation for their contributions while benefiting from tax relief on their life insurance policy premiums.

One of the most significant advantages is that the plan’s benefits are not subject to corporation tax. This is because the company does not own the plan, even though it acts as the proposer. The plan is set up under trust from the start, which means it’s not considered a company asset.

The trust owns the plan for the benefit of potential beneficiaries, and any proceeds are paid directly to them. As such, relevant life plans must be set up in trust from the outset. This structure ensures that employees have access to tax-efficient benefits and allows employers to attract and retain top talent without incurring additional taxes or costs. Overall, relevant life plans offer a win-win solution for both employers and employees seeking cost-efficient ways to provide critical financial protection.

Relevant Life Policy Trusts

A discretionary trust is a great way to ensure that the policyholder’s benefits are paid to the right people. This is especially important in Relevant Life policies, which legally require trustees to manage the funds until a successful claim is made. By holding the funds in trust, beneficiaries can receive their benefits quickly without the need for probate. Additionally, such funds will not be part of the deceased’s estate, thereby avoiding Inheritance Tax payments.

This type of trust involves three main roles: settlor, trustees, and beneficiaries. The person who places the policy into trust and pays its premiums (usually an employer) plays the role of settlor. The legal owners of the fund who control benefit disbursements and must act in the interests of beneficiaries are known as trustees. Finally, beneficiaries are those who receive benefits from any successful claims on the policy. Together, these roles work together to ensure that policies are managed correctly and that correct payments are made when needed. It is essential for policyholders to consider trusts for these reasons and protect themselves against potential fraud or incorrect distributions of their assets when they pass away.

Here’s How We Work

 

1. You can either request quotes or contact us to discuss the protection you need.
2. We’ll provide you with competitive and customized solutions that cater to your specific requirements.
3. Once you give us the green light, we’ll take care of all the paperwork and even put the policies in trust if required.

Who Cannot Take Relevant Life Cover?

Sole traders

In order to take a relevant life policy there needs to be an employer / employee relationship. This is not the case with sole traders and so unfortunately sole traders cannot take out a relevant life policy.

Partnerships

Again as above a typical partnership is not its own legal entity and instead the partners are self employed and earn a share of the companies net profit. For this reason partnerships cannot take out relevant life insurance. On the other hand a limited liability partnership is its own legal entity and in this case there is an employer / employee relationship and thus LLP’s can take out RLPs.

Those Avoiding Tax

It clearly states in the guidance from HMRC and in the insurance companies literature that the sole purpose for taking relevant life cannot be for the avoidance of tax.

Further Details on Sole traders and Partnerships

A sole trader or partnership can take out a relevant life policy for the benefit of any of its employees. Just not for the business owners themselves.

What Happens if Things Change?

If a client changes employer, their relevant life cover can be easily transferred without any break in their premiums. This means that regardless of whether the client moves from one employer to another or becomes self-employed, their policy remains in place and still offers valuable protection. However, if the policy is ported from an employer to an employee, it will become a personal protection plan instead of relevant life cover. At this stage, the policy will switch into the employee’s name, and the relevant life trust will be retired.

Additionally, when a policy switches to a personal protection plan, terminal illness cover will also cease to exist (this does vary from provider to provider). This means that if the person insured under the plan is diagnosed with a terminal illness and has a life expectancy of 12 months or less, they will not be able to make a claim for this benefit under their existing arrangement.