If you operate a limited company or LLP, you can offer your staff the employee benefit of a cash lump sum upon death or diagnosis of a terminal illness.

What is Relevant Life Insurance?

Relevant Life insurance offers a cost-efficient way for an employer to arrange a ‘death in service’ benefit for their staff. The policy would be taken out on the life of the employee and the benefit would be payable to the employee’s family or financial dependants. 

In this way, the business can offer a benefit which can help attract and retain employees. This may be of interest if you don’t have enough employees to acquire a group life policy, or if you only wish to cover certain people within the business.

The policy is paid for by the business, which can mean a number of advantages compared to normal personal life insurance or many Group life schemes. Such as the payout upon claim not forming part of the employee’s Pension Lifetime Allowance. The premiums are also usually seen as tax efficient due to being classed as a business expense. 

How does relevant life insurance work?

How does a relevant life policy work

Relevant life cover can be a tax-efficient way to offer a death-in-service benefit to employees.

Life is good because I know that I'm loved

What does relevant life insurance cover?

Relevant life insurance covers the life of the employee. It is a life insurance policy that is paid for by the business. Should the employee die within the term of the policy, it will pay out a lump sum to the employee’s beneficiaries. The policy will also cover terminal life insurance. Allowing an early claim to be made if the employee is diagnosed with less than 12 months to live.

What makes relevant life insurance tax efficient?

For the employee, there are no National Insurance contributions or income tax to pay in order to fund the premiums.

This example creates a saving of £76.96 per month which is 49% cheaper than a non-relevant life policy.

Personal life coverRelevant life cover
Monthly premium to Insurer£100£100
Employee income tax 40%£68.96None
Employee NI 2%£3.45None
Total employee earnings needed to fund monthly premium£172.41£0
Employer NI 2%£23.79None
Gross cost to company£196.20£100
Corporation tax relief amount 20%£39.24£20
Total net premium£156.96£80

*The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Please note that the premiums provided are indicative only and based on this specific case study/ example, which is shown for information purposes only. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.

Are there different types of relevant life insurance?

There are no different types of relevant life insurance. Relevant life insurance policy terms and conditions do vary between insurers though. Your Future Proof Adviser can help you determine the most suitable cover for your company and employees.

What are the benefits of having relevant life insurance?

The benefits of having Relevant Life insurance are many and varied.

  1. Staff benefits – the company provides employees a ‘death in service’ benefit to protect their loved ones.  This can help a business attract and keep employees. 
  2. The company is small – if the company does not have enough employees to get a group life policy, a relevant life policy is a good alternative.
  3. Only want to cover certain people –  within the business may be initially only senior managers are offered this perk.
  4. The payout in the event of death does not form part of the pension lifetime allowance which is the case for many group schemes.

Other advantages of a relevant life policy include:

  • Death benefit is usually free of inheritance tax.
  • Sum insured of up to 25 times the life assured’s annual remuneration.
  • Must be written into Trust** for the benefit of your chosen beneficiaries, meaning the sum gets paid out much quicker than waiting for probate.

**Trusts are not regulated by the Financial Conduct Authority

Who can have relevant life insurance?

Relevant life insurance is available to employees of a:

  • Limited company
  • Limited Liability Partnership
  • Employees of a sole trader ( Not the Sole trader themselves)  
  • Employees of a partnership ( Not the Partners themselves)

 

Happy business colleagues talking in the office.

How do I get relevant life insurance?

Whether you have questions or need quotes, our qualified and experienced advisers are available to help you.

Your adviser will want to know:

  • If you are a Director – How much cover do you want to provide for yourself as an employee benefit in the event of death?
  • For an employee –  how much employee benefit do you wish to provide your employee in the event of their death?
  • Is the company contractually obliged to provide cover upon death? If so how much?
  • What type of company are you calling from? – A Limited company? An LLP? 
  • How often do you wish to review the cover to ensure it keeps pace with any salary increases?
  • At what age do you/ does your employee expect to retire? 

Is there an age limit on relevant life insurance?

There are age limits on relevant life insurance. Whilst, insurers vary in their requirements, generally, a relevant life insurance policy can be applied for from age 16 years to 75 years. 

How much does relevant life insurance cost?

Sum assured in £sAgeMonthly premium £s
£100k30£6.03
£250k30£11.39
£100k45£11.03
£250k45£22.09

Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.

I’d like a quote for a relevant life policy, where can I get one?

Your Future Proof Adviser can provide quotes for a relevant life policy. They will provide full no-obligation advice on what is most suitable for you and your company. Our Advisers are all fully qualified and experienced. 

Last year we arranged £588,192,642 in business protection cover alone.

Call Freephone 0800 644 4468Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.

Please feel free to read our Independent client reviews, or read about the team at Future Proof

Here are some popular questions that our clients ask us:

  • The amount of cover that can be provided on a relevant life policy will vary from insurer to insurer. The amount of cover is also dependent on the age of the employee. The maximum amount of relevant life cover, will be a multiple of an employee’s total remuneration. This can be classed as salary, dividends, bonuses and benefits in kind. Whilst the multiple will vary this can be 25 or 30 times total remuneration for those aged 16 to 39 at the inception of the policy. Or, 20 times total remuneration for 40-49-year-olds. With 15 times for those aged 50-plus. All relevant life policies are restricted to a maximum age of 75. 

  • Relevant Life insurance is owned and paid for by the company.

  • A self-employed owner of a limited company can take out relevant life cover. A sole trader or a member of an LLP/ Partnership can not take out relevant life.

  • You are able to have more than one relevant life insurance policy. If you have been promoted or have received a significant salary increase, a top-up policy can be applied.  

  • Should you leave the employment of the company, there are 3 options for your cover:

    1) The policy is cancelled, there are no fees or charges for doing this.

    2) You ( the employee) take over the payment of premiums resulting in the policy becoming a normal personal life insurance. The existing Trust agreement ceases and the future tax savings will no longer apply. In this instance, the terminal illness benefit may be removed ( it is worth checking the small print).

    3) The life assured’s new employer takes over the ownership and payment of the premiums. The policy remains as a relevant life.

  • Yes, a limited company can pay for relevant life cover. The policy is paid for by the business, which can mean a number of advantages compared to a normal personal life insurance policy. Significantly, it can be tax efficient and result in savings of up to 50% on the premiums, depending on your tax band. 

    The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

“69% of businesses had never heard of a relevant life plan” [stated in Legal & General’s State of the Nation’s SMEs 2019]

two-business-women-mask

I’m a company director, is there relevant life cover tailored to me?

As a company Director, a relevant life policy would take into account your total remuneration:

  • salary
  • bonuses
  • dividends
  • benefits in kind

Our Advisers will examine your specific situation and search the market for the most relevant and suitable policy for your needs. As part of our service, we will also set your policy in Trust at no additional cost.

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Relevant Life cover and claims/ claim payouts

Here are some frequently asked questions relating to claims and Relevant life cover

  • Any beneficiaries can claim on a relevant life policy in the same way as they would a personal policy. They can call the insurer’s claims line or call Future Proof (if you set up your relevant life policy through us) and we can handle the claim on their behalf. 

     

    All relevant life policies must be written into Trust. This helps to ensure:

    • Policy proceeds are ring-fenced from Inheritance Tax.
    • Benefits paid out without having to wait for Probate to be granted.
    • Avoids having to follow the laws of intestacy.
    • Ensures the proceeds upon claim are passed to the chosen Trustees and beneficiaries

    Having the above created at inception, will make the claim period simpler and quicker for your beneficiaries.

     

  • The payout from a relevant life insurance policy is tax free.

    The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

  • Your loved ones will receive as much you have insured in your relevant life policy, tax-free. The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

  • A relevant life insurance policy is a pure life policy which can be used to settle any financial affairs after you have died. It should not be set up with the sole intention to cover a mortgage. If your beneficiary/ beneficiaries want to use it to pay off a mortgage then that is their choice. 

     

  • Relevant life cover is not a benefit in kind and is not taxed in this way.