Relevant life policies

Many of us ignore the reality of what would happen if we were to die suddenly without having proper financial protection in place. 

The consequences could be devastating, especially for surviving family members, – leaving them with a large outstanding mortgage, not being able to pay school or university fees or a large bill for your final expenses.

Setting up a life insurance policy for yourself is crucial but can also be quite expensive. If you think that the premiums for an adequate level of cover are too high and you happen to be a director of a limited company, then a relevant life policy may be ideal for you and will help you save money on your monthly premiums.

What is a relevant life policy?

A relevant life policy is a tax-efficient way to provide a single employee with death-in-service benefits. These plans pay out through a Discretionary Trust and are taken out and paid for by the employer.

It is ideally suited for small businesses who might not have enough employees to implement a group death-in-service scheme for their employees. Relevant life policies help businesses save money while offering a competitive benefit to attract high-calibre employees due to their advantageous tax treatment. 

Why are they useful?

The tax treatment of relevant life policies attracts many businesses to arrange this type of policy for their employees and directors to benefit their dependants via a discretionary trust. As the business pays the premiums, the premiums are tax-relievable for the employer and the premiums are not taxed as a benefit in kind on the employee.

Like death in service, the benefits are payable free of income tax. Other key tax benefits are:

• The benefits will not form part of your lifetime pension allowance
• The payments made will not form part of your annual pension allowance
• In most cases the benefits are paid free of inheritance tax

It can also benefit high earners who have accrued a considerable pension fund as they can be provided with death-in-service benefits that will not contribute to their lifetime allowance. Alternatively, some employees may need more life insurance cover than that offered by the main death-in-service scheme. In this case, a relevant life plan can be established alongside the group scheme to achieve this purpose.

Relevant life policies are not suitable for key person insurance or co-shareholder protection as the proceeds from the plan must be paid to a trust which benefits the family and other financial dependants of the life assured to qualify for the preferential tax treatment on premiums.

How can we help?

If you are a director of a limited company and would like to save money on your premiums for your life assurance policy, then a relevant life policy is ideal for you. The Private Office can assist you in determining the right level of cover and setting up the policy for you to ensure your family will have adequate financial provision in place, should the unexpected happen and provide you with peace of mind.

If you would like more information about relevant life policies get in touch and speak to a financial adviser who will be able to help you.

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