relevant life cover, also known as Employer-funded life insurance, is a relatively new type of life insurance policy that provides a tax-efficient way for small businesses to offer life insurance as an employee benefit. It is designed to be an attractive alternative to traditional life insurance policies, especially for small business owners and directors. In this article, we will delve into the details of relevant life cover and why it has become a popular choice for many businesses.
What is relevant life cover?
Relevant Life Cover is a life insurance policy that is taken out by an employer on behalf of an employee. It is a tax-efficient way of providing life insurance as a benefit to employees, particularly those who are not eligible for death in service benefits through their employer’s group life insurance policy. The policy is paid for by the employer and is considered an allowable business expense, meaning that the premiums are not subject to income tax or National Insurance contributions.
One of the key advantages of Relevant Life Cover is that it is not classed as a company benefit in kind, which means that the payout from the policy is typically free from inheritance tax. This can be a significant benefit for both the employee and their beneficiaries, as it ensures that the intended beneficiaries receive the full amount of the payout without any deductions for tax.
Who can benefit from Relevant Life Cover?
Relevant Life Cover is primarily targeted at small business owners and directors who are looking for a tax-efficient way to provide life insurance for themselves and their employees. It can also be used by larger businesses to provide life insurance for key employees whose death would have a significant impact on the company’s operations.
Employees who are not eligible for death in service benefits through their employer can also benefit from Relevant Life Cover. This includes employees who work for small businesses that do not offer group life insurance, as well as contractors and freelancers who do not have access to employee benefits through a traditional employer-employee relationship.
Benefits of Relevant Life Cover
There are several benefits to taking out a Relevant Life Cover policy, both for employers and employees. Some of the key benefits include:
1. Tax-efficiency: As mentioned earlier, Relevant Life Cover premiums are not subject to income tax or National Insurance contributions, making it a highly tax-efficient way of providing life insurance for employees.
2. Inheritance tax relief: The payout from a Relevant Life Cover policy is typically free from inheritance tax, ensuring that the intended beneficiaries receive the full amount of the payout without any deductions for tax.
3. Flexible coverage: Relevant Life Cover policies can be tailored to suit the specific needs of the employer and the employee, including the level of coverage and the length of the policy term.
4. Competitive premiums: Relevant Life Cover policies tend to offer competitive premiums compared to traditional life insurance policies, making them an attractive option for employers looking to provide life insurance for their employees.
How to get Relevant Life Cover
Getting Relevant Life Cover is a relatively straightforward process. Employers can work with an insurance broker or financial advisor to find a suitable policy that meets the needs of the business and its employees. The advisor will help the employer determine the level of coverage needed, the length of the policy term, and any additional features or benefits that may be included in the policy.
Once the policy has been selected, the employer will need to complete an application form and provide any relevant information about the employee(s) to be covered. The insurance provider will then assess the application and provide a quote for the policy. Once the premiums have been agreed upon and the policy is in place, the employer will be responsible for paying the premiums on behalf of the employee(s) covered by the policy.
In conclusion, Relevant Life Cover is a tax-efficient way for small businesses to offer life insurance as an employee benefit. It provides a range of benefits for both employers and employees, including tax-efficiency, inheritance tax relief, and competitive premiums. If you are a small business owner looking to provide life insurance for yourself or your employees, Relevant Life Cover could be the ideal solution for your business needs.