Your Family's Life Cover
Having the appropriate life insurance is a key foundation of any financial plan. It ensures that those that matter most to you are taken care of should the worst happen. This is especially true for parents running a business where they are the primary earner, or where growing a business is key to the financial success of their family.
Sadly, most people are too busy to put the right insurance in place when they start a business or they fail to increase they insurance as their business and earnings grow. Take a moment to think about the financial impact on your family should your earnings no longer be available whilst your children are in school.
If any life insurance you have in place is paid directly out of your income after tax, there is a better option if you run a limited company.
The option is called a Relevant Life plan where you can set up a policy through the business to pay out a life sum should you, the business owner, or an employee die. This enables you to have the right cover in place and do so tax efficiently.
There are several benefits to having this plan.
It will pay a lump sum to your beneficiaries which they can use to live off, giving you peace of mind they will be okay.
As it pays out to a trust you retain control of who will benefit.
It is extremely tax efficient and could result in a tax saving of nearly 50 in certain cases, saving you money, especially if you’re paying current insurances from taxed income (take a look at the example of tax saving at the bottom of this blog).
You can cover for greater than the 4x salary you often get for Death in Service schemes.
Your beneficiaries would receive the lump sum quickly as it doesn’t require a grant of probate to receive the money.
It can help you attract or reward staff by improving their employee benefits, increasing their overall package whilst saving the company and the staff tax.
If you do have a Group Life policy in place it can provide additional cover to the directors or other important staff members.
In most cases it is paid out free of Inheritance Tax via a discretionary.
More details on how the Relevant Plan works are included below. For any limited company business owners, a Relevant Life Plan should be the first port of call when it comes to your protection needs.
If you would like to discuss whether a Relevant Plan would be appropriate for you and your business please get in touch with us at support@worktolivefp.com.
What is a Relevant Life Plan?
This is how employers can provide individual death in service benefits for their employees. It’s designed to pay a lump sum to the employee’s family if the employee dies when employed while the plan is in place. It’s also useful for small businesses that don’t have enough eligible employees to justify a group life scheme.
How does it work?
The policy is applied and paid for by the business and is written into trust from outset. It pays out a lump sum to the employee or their beneficiaries if they die or are diagnosed with a terminal illness while employed during the policy term. The premiums are paid by the company with any benefits received by the employee.
Who's it for?
Company directors. Directors of limited companies can enjoy valuable tax benefits if the premiums for life insurance are paid by one company instead of from personal income after tax.
High earners. The benefits of Relevant Life policies do not count towards the current Lifetime Allowance of £1 million, above which tax is currently charged at 55% tax (on death).
Specific employees. A Relevant Life policy can provide individually calculated cover levels so are suitable where companies only want to reward several employees or provide variable cover.
How does it save you tax?
What else do you need to know?
A Relevant Life Plan must only pay out as a lump sum to an individual or charity on the death of the person covered. The payout can’t be re-invested in a clients business. It’s also important that the plan doesn’t provide any other benefit and that it’s not used for the purpose of tax avoidance. The policy must be placed into a Relevant Life Plan Trust which can be tax-efficient for both the employee and the employer. Cover will cease on insurance products if premium payments are not maintained.
This guide is for information purposes and doesn’t constitute financial advice which should be based on your individual circumstances. Cover will cease on insurance products if premium payments are not maintained. Pension relief from taxation are subject to change and their value depends on your individual circumstances. Should you need financial advice you should speak to a trusted financial adviser (like me).