What is Relevant Life Cover?
Relevant life cover is a tax-efficient way to provide life insurance for company directors or employees.
As the employer, you pay for the insurance premiums. The policy then pays out a lump sum on the death (or terminal illness diagnosis) of the person insured. The payout is made to the insured’s family or dependants.
Why Would You Take Out Relevant Life Cover?
The reason that relevant life cover is tax-efficient is that the premiums are treated as an expense if the company has more than 2 directors. As a result, it can be an attractive benefit to offer employees because the company pays the premiums, rather than the employee. Directors and employees can also take the policy with them if they move companies and keep the benefits of the cover.
Companies that are too small to set up a group life scheme can use relevant life cover as an alternative way to provide life insurance for their employees.
You have to decide what level of cover to take out, but the death-in-service benefit for relevant life cover can be up to ten times the director’s income including dividends.
Who Can You Insure With Relevant Life Cover?
Both employees and salaried directors can be insured with relevant life cover. Sole traders and partners may also use relevant life cover, but this does depend on the specific policy.
What Are the Tax Implications of Relevant Life Cover?
Relevant life cover premiums are a tax-deductible business expense (unlike some group schemes). This applies so long as the policies are under the ‘wholly and exclusively’ rules.
Benefits are also usually free from inheritance tax if they are paid through a trust.
Relevant Life Cover vs Key Person Cover: What Are the Differences?
Business protection insurance comes in many forms, so check which is most suitable for your business and its situation.
Relevant life cover pays out a lump sum to the insured’s family or beneficiaries. The insurance is to help them pay living costs and bills.
Whereas key person cover pays out a lump sum to the business because the insurance is to protect the business from the financial impact of losing a critical director or employee.
The business pays the premium for both these types of insurance but the financial beneficiary is different. With relevant life cover, the payout goes to the individual’s family, whereas with key person cover the beneficiary is the business.
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