Parsonage’s View on Relevant Life Cover
Relevant Life Cover is life insurance for key individuals within a business, most commonly the directors.
In the way that it is common for the staff members of a large company to have death in service (that being life cover that benefits the family of an employee if they were to die whilst employed), directors of a business can take out a policy for themselves.
The key advantage of this cover over a standard life policy is the tax treatment, as demonstrated below:
Ordinary Life Policy Relevant Life
Policy Payment of premium £1,000 £1,000
Employee’s NI £34 £0
Income Tax at 40% £690 £0
Employer’s NI £238 £0
Total Gross Cost £1,962 £1,000
Corporation Tax Relief £392 £200*
Net Cost £1570 £800
Saving £770
So, if you are a director/owner of your own company and you have an ordinary life policy in place, or if you have a need for life cover, you should be considering the merits of Relevant Life Cover as an efficient way of meeting your needs.
Here’s an example of a case we recently advised our client on.
Our client is a new limited company formed in the UK having moved from abroad. They are a private equity consultancy with contracts in place giving them immediate revenue. Having reviewed their financial and family situation Populo Financial Services highlighted the need and benefit of ‘Relevant Life’.
We advised that £2,5m was the appropriate level of cover with a term to anticipated retirement in 15 years time. We demonstrated to the client the merits of us acting on a fixed fee basis, thereby taking zero commission from the provider.
Over the 15 year term, the client will save £19,116.40 in premiums due to Populo FS taking zero commission, and having paid our £5,000 fee.
This is a saving on top of that demonstrated above.
(£565.57 with commission monthly premium, £431.59 zero commission monthly premium. Over 15 years this is a £24,116.40 reduction in premiums)
So, all in all, relevant life cover on a fixed fee basis is a very cost efficient way for director/owners to take out life cover to benefit their family.
Please get in touch if you would like to know more.
* Relevant Life is effectively a death in service policy, usually used by business owners or small companies to provide a benefit to their employees. A relevant life plan is often preferable to an ordinary life insurance as there are no income tax or national insurance liabilities for the employee. This is because it’s the employer who has taken out the plan and the employee isn’t responsible for making the payments. Furthermore, as long as the local inspector of taxes accepts the payment has been incurred ‘wholly and exclusively for the purpose of trade’, the employer will be able to claim tax relief on the payment.