What is a relevant life insurance policy?

Question

I am a director of my own limited company and have been considering life insurance and came across relevant life cover. Is relevant life cover appropriate and how is it different to a personal life insurance plan?

Answer 1

If there are not enough members to set-up a group life insurance scheme or is it simply not appropriate a relavant life policy is an alternative way of providing a lump sum benefit on death of the employee.

A relevant life policy is aimed at two key groups -

• High earning employees who have substantial pension funds and don't want their death-in-service benefits to form part of their lifetime allowance.
• Small businesses that do not have enough eligible employees to set-up a group death in service scheme and want to provide a level of company paid life cover whether for an employee or director.

There are a number of advantages to arranging relevant life insurance including -

• The policy premiums paid for by the business are not normally assessable on the employee as a benefit in kind so they are not subject to income tax.
• The policy premiums paid for by the business are not normally assessable for employer or employee National Insurance contributions.
• The policy premiums may also be treated as an allowable expense for the employer in calculating their tax liability provided that the local inspector of taxes is satisfied they qualify under the ‘wholly and exclusively’ rules.

There are a number of rules to qualify as a single person relevant life policy.

• The policy must only provide a lump sum benefit on death payable before the age of 75.
• The plan must solely pay out on death and have no serious or critical illness cover included.
• The plan must not have a surrender value.
• Any benefit payable from the policy must only be payable to an individual or a charity.
• The main purpose of the relevant life policy should not be for the avoidance of tax.

The advantages relevant life insurance brings to the table means it has become a very popular method for young companies and directors of their own limited company to provide a level of death in service benefit.

This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 020 8432 7333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.