Relevant Life Cover

Employers can arrange term assurance on the lives of employees, including directors, with Relevant Life Plans.

When an employee dies or is diagnosed with a terminal illness while employed during the term of the policy, the policy will pay a lump sum benefit to that employee’s family.

Relevant Life Plans are uniquely tailored to meet your individual needs. Employers can usually arrange equivalent life insurance policies for much less than employees can.

HMRC usually considers this type of plan to be an allowable business expense, and all premiums and benefits are deductible for Income Tax, National Insurance, and Corporation Tax purposes.

If the employee is a higher rate taxpayer, premiums could be reduced by up to 49% compared to a typical life insurance policy. This figure could be as high as 40% for a basic rate taxpayer.

Employees can benefit from relevant life insurance with terminal illness coverage at a cost-effective price.

An appropriate life policy as part of your benefits package can make your company more attractive to potential employees, help retain and reward existing employees, and send the message that you care about your employees.

Smaller companies can also offer similar benefits to their larger rivals by offering relevant life insurance, which can reduce their tax liability.

Premiums are usually considered a business expense, so they can be deducted on your tax return. If an employee’s estate is worth more than the current inheritance tax threshold, keeping the plan in trust can provide an opportunity to plan for inheritance tax.

The following types of individuals are covered by relevant life insurance policies:

• Death-in-service benefits are needed by employers who have too few employees to set up a group plan.
• Individual directors who wish to provide death-in-service benefits for themselves without covering all their employees.
• Individuals with high earnings, such as directors, who do not receive a death-in-service allowance (£1.073 million in 2021/22).

In the absence of an employer-employee relationship, relevant life insurance plans are not available.

As an example, a sole trader, an equity partner of a partnership or an equity member of a limited liability partnership.

Relevant Life Plans are company life insurance plans tailored to the needs of your employees. Relevant Life Plan does not count towards annual or lifetime pensions, and if your company is not suitable for a group life scheme, it is a cost-effective alternative. Relevant Life Plans have the following key features:

• The plan provides life insurance for your employees while they are working for you. Directors may be included in this category.
• Depending on the level of coverage, your business pays regular premiums.
• An employee covered by the plan dies or is diagnosed with a terminal illness (with a life expectancy of less than 12 months) during the term of employment.
• It is designed to meet certain legislative requirements so that your premiums, benefits, and options are tax-efficient.
• Both employers and employees can benefit from Relevant Life Plan Trusts, which are tax-efficient.