A relevant life plan or policy can offer a fantastic perk to employees as well as substantial tax benefits for your company.
In This Guide:
- What is a relevant life plan?
- How does relevant life insurance work?
- How much does relevant life insurance cost?
- Relevant life cover for small businesses
- Who gets covered by a relevant life plan?
What is a relevant life plan?
Similar to a ‘death in service’ benefit, a relevant life plan is an insurance policy that will cover your employees in the event of their death and offers a cash lump sum to be paid to their family.
The cash sum will only be paid out while an individual is currently employed and has agreed to take on the plan. The employer will own the policy and pay premiums in the same way as they would with a normal insurance policies.
If an employee becomes terminally ill, with a life expectancy of 12 months or less, and the plan is in place then they will also receive a payout. This is known as terminal illness cover and comes as standard for most relevant life plans.
The policy will be placed into a relevant life plan trust, which offers tax-efficient benefits for both employee and employer.
Often used by companies that wish to offer perks to their employees such as life insurance but aren’t large enough to cover the high premium costs of other policies.
How does relevant life insurance work?
As with more traditional life insurance policies, the employee will be assessed on certain criteria when the plan is taken out; namely health condition, age and lifestyle to determine the level of cover required. The employee may also be assessed on their financial status, with mortgage repayments, debt, bills, and salary taken into account.
This information will generate a premium for the employee, but rather than them paying it the business does. As the plan will be held in a trust, If the employee dies the benefactors will receive a tax-free payout.
These policies are not treated as ‘benefit-in-kind’ or ‘death-in-service’ so those covered aren’t liable to pay any tax and the company can treat the premiums as an expense to reduce corporation tax.
Relevant life insurance plans can be taken out for employees but can also be extended to directors and owners themselves. They offer an attractive incentive to the company but also have generous tax regulations for employers.
How much does relevant life insurance cost?
The cost for relevant life insurance depends on a number of factors for each employee, such as health, age, smoking status and personal life (hobbies, etc.). This makes it difficult to place an exact amount on premiums and most relevant life insurance calculators will only offer an average estimate of cover.
Costs also depend on what type of relevant life insurance is taken out. For level life insurance, the amount paid out is a fixed sum agreed at the time of making the policy, whereas some policies can be linked to inflation meaning the payout and the premiums will adjust to the cost of living.
It is advisable to shop around when looking at quotes to get the best deal, or hire an independent specialist to look into the finer details of each policy and your individual employees circumstances.
Relevant life cover for small businesses
Relevant life insurance offers a fantastic perk for small to medium size businesses. It demonstrates to employees that you value their input, offering comprehensive life insurance cover that they do not have to pay for, and is also seen as a business expense which will reduce your annual corporation tax.
Additionally, owners and directors themselves can be covered under the plan, meaning their personal income will not affect the pay-out sum or premiums paid as their life insurance will fall under the business itself.
Who gets covered by a relevant life plan?
Whether you own or are an employee of a company that has a relevant life plan then you can be covered under the policy. Who is covered under the policy is up to the policyholder themselves and depending on the size of the business it may not be cost effective to offer the plan to all employees.
While it offers a strong incentive to work for the company, the nature of relevant life plans means that you can be very selective about who it is offered to. It can be used as a perk for directors, offering them a tax benefit as their life insurance premiums are paid by the company, or for key employees as a promotion/hiring incentive.
Note: Not all brokers we work with offer this type of plan.