What is relevant life insurance and who can use it?

For many businesses, it is key to offer perks to their job listings to attract the best possible applicants. One of these benefits some businesses provide is relevant life insurance for their employees. Below we have explained how relevant life cover works, and which businesses could use it.

Relevant life insurance is a policy a company can purchase to cover their employee in the event of critical illness or death. In other words, think of relevant life cover as a life insurance policy a business can take out on one of their employees. Premiums are paid by the company and payouts are received by the employee’s beneficiaries.

Some small businesses do not have enough employees to qualify for a group life pension scheme, which is why they would opt for relevant life cover. This is one of the key differences between these two types of cover.

In addition to this, relevant life cover is also exempt from lifetime allowance tax, while a group life pension scheme does not have this benefit. This is explained in more detail later in our article.

Keyperson cover is designed to protect the business in the event of a key employee’s loss. Therefore, the insurance payout will be made to the company and not the employee’s beneficiaries. As said, relevant life cover is designed for the employee’s beneficiaries.

To learn more about keyperson insurance, read our guide.

No, you cannot add critical illness cover to your relevant life insurance policy. This is the same for other types of cover, such as disability cover. The reason for this is because if this form of cover is added it would form a benefit in kind and not qualify as relevant life.

One of the key advantages of relevant life cover is it is tax-efficient.

To start, when setting up relevant life cover it is legally required to be set up into a trust. This means, in the event of a payout, the money will fall outside of the employee’s estate, and is not subject to inheritance tax. 

For the business, relevant life insurance can be listed as an expense and is tax deductible. Therefore, companies can qualify for income tax, National Insurance, and corporation tax relief.

In short, the lifetime allowance is the maximum amount an individual can save into their pension without incurring an additional tax liability. To find out what this allowance is, and what you will be charged if you save over this figure, read our piece on the lifetime allowance.

Crucially, the lifetime allowance will still apply in many cases after death. In these instances a relevant life plan can be beneficial as it does not form part of an employee’s lifetime allowance. 

A group life scheme, alternatively, is not exempt from your lifetime allowance.

Unfortunately not, members of a Limited Liability Partnership (LLP) and sole traders (as owners of their own business) are not eligible for a relevant life plan. This is because these people are typically not considered employees. With that being said, there are other options on the market which our preferred advisers Watts Mortgage & Wealth Management can explain to you. 

A relevant life insurance plan can also be used by a sole trader, partnership, limited liability partnership, limited company or charity.

The commercial insurance sector is incredibly complex, and this is reason enough in itself to use a broker. Not only do they have suitable knowledge of the sector, but they also have the necessary contacts to help you find the best deal, giving you access to options you may not be able to find on your own.

Speak to Watts Mortgage & Wealth Management Ltd to find the best policy for your unique business. Click here or call 01270 620 555 to get in contact with our preferred advisers today.