Relevant life cover is a type of life insurance that is designed specifically for businesses to provide death-in-service benefits for their employees. This can be a tax-efficient way to provide life insurance for employees without the need for a group life scheme, especially for small businesses or high-earning individuals who are not eligible for traditional group life policies.
So, what exactly is relevant life cover and how does it work?
Relevant life cover works in a similar way to other life insurance policies in that it pays out a tax-free lump sum if the insured individual were to pass away during the policy term. The key difference with relevant life cover is that it is set up as a single-life policy rather than a group scheme, meaning that each individual employee has their own policy.
One of the main advantages of relevant life cover is the tax efficiency it offers. Premiums paid for relevant life cover are typically treated as a business expense, which means they are not subject to income tax or national insurance contributions. This can result in significant cost savings compared to personal life insurance policies where premiums are paid out of post-tax income.
Employers can also benefit from relevant life cover as a recruitment and retention tool. Offering a valuable life insurance benefit can help attract and retain high-quality employees, especially in competitive industries where benefits packages play a significant role in job satisfaction.
Another advantage of relevant life cover is that it can provide cover for employees who may not be eligible for traditional group life schemes. This could be due to their high earnings, health conditions, or the size of their employer. Relevant life cover can provide a tailored solution for these individuals, ensuring they have access to valuable life insurance cover.
It’s important to note that relevant life cover is typically aimed at employees who are classed as directors, owners, or high-earning individuals within a business. This is because relevant life cover is not subject to the same tax rules as traditional group schemes, which can make it less suitable for lower-earning employees.
When setting up relevant life cover, the insured individual will need to provide details such as their age, health, and smoking status. The policy term and benefit amount will also need to be decided upon, taking into account factors such as the individual’s financial obligations and family situation.
It’s worth noting that relevant life cover is not just limited to providing death benefits. Some policies can also include critical illness cover, which pays out a tax-free lump sum if the insured individual is diagnosed with a specified critical illness during the policy term. This can provide additional financial security for employees and their families in the event of a serious illness.
In summary, relevant life cover is a tax-efficient way for businesses to provide life insurance for their employees. It offers a tailored solution for high-earning individuals who may not be eligible for traditional group schemes, while also providing valuable benefits such as critical illness cover.
If you are a business owner looking to provide life insurance for your employees or an individual seeking a tax-efficient way to protect your loved ones, relevant life cover could be the ideal solution for you. Speak to a financial adviser to find out more about how relevant life cover could benefit you and your employees.