Life Assurance for Directors
Are you paying more than you need to for your life insurance?
The odds are you have life insurance. What you may not realise is that arranging it via your business using what is known as a Relevant Life policy is more cost-effective than paying for it personally.
What is a Relevant Life policy?
A Relevant Life policy is tax-efficient life insurance for an individual that is taken out and paid for by their employer. It is treated as legitimate business expenses and therefore could reduce your company’s Corporation Tax liability. This and other features mean that it is of interest to business owners and directors and high-earning employees.
What are the benefits?
- The company pays the premiums, which are not assessed as a benefit in kind and so there is no need for you to include them on your income tax return.
- The Relevant Life premiums are not taken into account when calculating the employee’s National Insurance contributions.
- Premiums may be treated as an allowable expense for the business when calculating its tax liability.
- The proceeds do not normally form part of your estate for inheritance tax purposes, whereas normal life insurance does, unless it is written in trust.
- Proceeds from Relevant Life policies do not count towards the lifetime pension allowance, whereas those from most normal death-in-service policies do. Therefore a sizeable payout could push someone currently well within the lifetime allowance over the limit, landing their heirs with a 55% tax bill on the excess.
Who should consider a Relevant Life policy?
- Directors and business owners who need life insurance, including those who are already paying for personal life insurance out of earned income.
- High-earning directors and employees who have death in service cover that may push them over the pension lifetime allowance should they die.
- People covered by a group life scheme who want to increase the amount of cover they have, as some schemes may not allow this.
- Small companies wanting to provide death-in-service benefits for certain key people but are reluctant to pay the costs generally incurred when setting up a company group scheme, or don’t have enough employees to do so.
What limitations are there?
- Relevant Life Cover is not available to people who are self-employed or equity partners.
- Once the policy is set up you can’t change it, but you can cancel it at any time.
- The policy pays the sum assured as a single lump sum if the person covered dies. Regular payments are not possible. Cover is for an agreed duration and must end once the individual reaches the age of 75.
- Only death benefits (which can include terminal illness) can be provided, in contrast to some life insurance policies which can also include critical illness cover.
- Proceeds must be paid through a discretionary trust (usually supplied by the insurance company providing the cover).
- Beneficiaries are normally restricted to family members and dependents.
For further information please get in touch with your MHA MacIntyre Wealth Management independent financial adviser or send us an online enquiry.