Wouldn’t it be good if your business could pay for your personal life cover?

January 24, 2017 Relevant Life Policy

Well, that’s exactly what you can do with a Relevant Life Policy!

So what is a Relevant Life Policy (RLP)?

It’s a single life plan where the policy is taken out and paid by a Limited company and the individual covered is the employee. So this is ideal for directors of limited companies, not for self-employed or partnerships.

RLPs are a very tax-efficient way of providing a one person death-in-service benefit and it doesn’t matter how big or small your business is.

Although your company makes the payments, they’re not usually treated as a benefit in kind, so they’re not included in your income tax assessments and premiums are normally seen as an allowable business expense.

These tax benefits therefore mean you can save up to 50% on the cost of cover, compared to a personal life cover policy, where premiums are paid from your own taxed income.

There are some rules:

  • The policy must be for lump sum death cover only on a single life basis. It can be set up as Level, Decreasing or Increasing cover basis.
  • The policy has a maximum ceasing age of 75.
  • The premiums are paid by the Limited Company, not the individual Director/employee.
  • You can’t turn existing life cover into a RLP – you will need to take out a new policy.
  • The policy must be put in trust for the benefit of the director/employee’s family, dependants or a charity.

What are the advantages of using a discretionary trust?

Having claim benefits paid through a trust means the lump sum is usually paid free of income and inheritance tax.

The trust is discretionary, allowing trustees to be flexible in whom they pay benefits to. It’s possible for the person covered to guide the trustees in their decision making and a nomination form is included in the trust to enable the person covered to express their wishes.

How much cover can you have?

The employee can select the amount of cover required and typically the maximum amounts would be 15 to 30 times the employee’s total remuneration, including basis (PAYE) salary, plus dividends and any bonuses.

What if circumstances change?

If you set up a policy then you close your Limited company, the Relevant Life plan is portable, so it can be taken to a new employer or you can pay premiums personally, without any new underwriting or health questions.

The plan is flexible, so includes options for you to increase the cover following certain life events, without the need for further medical underwriting:

  • Getting married or divorced or entering into or dissolving a civil partnership
  • Moving house
  • Having a baby or adopting a child
  • Getting a pay rise

If you have a Limited Company and want to look at arranging life cover for the benefit of your family, take a look at a Relevant Life Plan, visit the Moneysworth website or call 0161 850 8300.