What is Relevant Life Cover?
Relevant Life Cover is a type of death-in-service benefit that is set up and paid for by a business and is a tax-efficient way of providing life insurance to company directors or single employees.
Should the individual die while insured, the policy will pay out a tax-free lump sum death benefit to their loved ones.
Relevant Life Cover is a cost-effective way to provide a small number of staff an additional perk, rather than setting up a sometimes expensive group scheme. Relevant life insurance can also be helpful for high earning directors and employees who have made use of their pension lifetime allowance, as a traditional scheme would count towards their retirement savings.
Key facts about Relevant Life Cover:
- The premiums are paid by the company and are usually an allowable business expense.
- Thanks to a variety of HMRC-approved tax reliefs, savings in comparison to a personal policy can be up to 50%.
- Should the insured individual pass away the policy will pay out a tax-free lump sum to their loved ones.
How does Relevant Life Cover work?
Like a traditional life insurance policy, an individual is assessed by how much cover they require, their age, health and lifestyle. Assuming the policy is for a director, the amount of cover requested will be determined by their mortgage costs, salary and other things such as their personal bills. Once assessed the business will be presented with the premium, rather than the individual paying for it.
Should the insured individual die while employed and insured by the company, the policy will pay out a tax-free lump sum to the person’s beneficiaries, typically their family.
Relevant Life Cover isn’t just for company directors though because it can be provided to employees as a useful benefit too.
Choose a set lump sum or one that is linked to inflation
Relevant Life Insurance can either be for a set lump sum, known as “level”, or linked to inflation so that the payout reflects the cost of living at the point of claim. If the payout is linked to inflation, the premiums will be too, so the cost of the policy will also increase over time too.
Can I get Relevant Life Cover?
Relevant Life Cover is often used by businesses where a director is working through a limited company or by small companies that don’t have enough employees to qualify for Group Life Insurance.
If you’re a small business that can’t qualify for Group Life Insurance, Relevant Life Cover is a great benefit to give to your employees.
Who can get Relevant Life Insurance?
A relevant life insurance policy is designed for:
- Company directors
- Contractors working through their own limited companies
- Micro businesses that want to provide a level of company-paid life cover to their employees
- HIgher-earning employees with substantial pension funds
Who can’t get Relevant Life insurance?
While there are a variety of people that can benefit from Relevant Life Insurance, some people can’t, those include:
- Consumers - these policies can only be purchased by a business
- Sole traders - Relevant Life Cover has to be purchased through a limited company
Why contractors love Relevant Life Cover
On the whole, the people that benefit most from Relevant Life Cover are contractors. These days, most contractors have their own limited companies, but tend to be the only employee other than their spouse. They are too small for a group scheme but they can take advantage of Relevant Life Cover to benefit from the same tax-efficiencies as a death-in-service scheme.
What are the benefits of Relevant Life Cover?
As we’ve outlined in the previous sections of this guide, there are numerous benefits to both the business and the individual when taking out a Relevant Life Insurance policy. In this section we list all of the benefits to both the business and the individual.
Benefits to a business
- Even micro-businesses of 1 or 2 people qualify, assuming they are a limited company
- Owners of small businesses can share the same tax efficiencies of larger businesses
- Relevant Life Cover is a desirable benefit and can help attract and retain key team members
- Reduces a company’s corporation tax bill as it is view as a company expense
Benefits to the individual
- Receive life insurance without having to pay any premiums
- Beneficial to high earners as RLC doesn’t count towards the annual pension lifetime allowance.
- Reassurance that should the individual pass away whilst in service, their family will be looked after.
How much relevant life cover should you get?
Employers that provide Relevant Life Cover to their employees as a benefit, usually offer somewhere in the region of three to ten times the employee’s salary. This is just a guide though, and you would need to calculate what’s affordable to your business and how much you would like to invest into the scheme. If the policy is being taken out purely for the company directors, then they should look at their own liabilities, such as their mortgage debt, to come up with a suitable amount of cover.
Do I Need Relevant Life Insurance?
Similarly to traditional life insurance, if you don’t have any debts, dependants or expenses to consider, you may not need a Relevant Life Insurance policy.
However, if you do have a family, and you’re the primary provider, it is a tax-efficient way to purchase life insurance.
As a recap, the primary benefits of RLP are:
- Premiums are paid by the business, therefore reducing your corporation tax liability
- It’s tax-efficient
- Payouts are usually not included in the total maximum pension lifetime benefit calculations
- RLC is paid as a tax-free lump sum, thanks to the trust structure set up alongside the policy
How much does relevant life insurance cost?
Similarly to a life insurance policy, there are a number of factors which determine the cost of Relevant Life Insurance. Some of these are:
- The level of cover required
- The length of cover
- The age of the individuals on the policy
- The health of the policyholders
- Smoker status of individuals
- Lifestyle and hazardous activities
- Family history of illness
Relevant Life Quotes
To give you a better idea of the cost of Relevant Life Insurance, we’ve compared the market for fit and healthy 30, 40 and 50 year olds, looking for £200,000 of cover. The comparison quotes assume that the individuals are in good health and are non-smokers.
Relevant Life Insurance cost for a 30 year old non-smoker: £200,000
£8.24 per month*
Relevant Life Insurance cost for a 40 year old non-smoker £200,000
£16.48 per month*
Relevant Life Insurance cost for a 50 year old non-smoker £200,00
£28.58 per month*
*Prices are true as of the 26/07/20 but should only be used as a guide.
Relevant Life and Critical Illness
Where Relevant Life Cover is being offered in place of Death In Service benefit for a single employee (or director), one of the requirements to qualify for the tax efficiencies is that it does not include Critical Illness Cover.
Many company directors that take out a Relevant Life Policy, will actually take out Executive Income Protection instead of a Critical Illness Policy. Executive Income Protection provides not only a greater level of cover for their income, it can also be paid for by the business without affecting the Relevant Life policy.
HMRC and Relevant Life
The following is our current understanding of HMRC’s tax rules relating to Relevant Life Cover. Before applying for cover we recommend that you speak with your accountant or local tax inspectorate to ensure you don’t fall foul of the rules.
- Relevant Life Cover is not classed as a taxable benefit in kind for employees
- It is treated as a tax-deductible expensive for the company in question
- It is excluded from NI calculations, both for the employer and employee
- Avoids inheritance tax by being written into a company's own trust
So Relevant Life Cover isn’t a P11D benefit in kind?
No, it’s currently not, as long as it’s structured correctly, even though the company pays for the policy.
Compare Relevant Life Cover
Different insurers will offer different rates and levels of cover, so it’s important to compare policies before you buy. We always recommend speaking to a life insurance broker to help you find the most suitable policy; not only will they be able to provide you with the best prices available, they’ll also make sure you get the right policy or combination of policies for you and your business.
To get a free comparison quote and speak to one of our expert advisors please complete this quick form.
Relevant Life Cover Vs Keyman Insurance
The main difference between Relevant Life Cover and Keyman Insurance is that Keyman Insurance is designed to protect the business, whereas Relevant Life Cover is there to provide protection to an individual’s family members. With Keyman Insurance, if the individual dies then the proceeds will be paid out to the company, to be used to cover lost profits, recruitment fees and generally trying to maintain business as usual. Relevant Life Insurance would pay a lump sum out to the loved ones of the individual and there would be no benefit to the business.
- Keyman Insurance provides the company with a payout
- Relevant Life Cover provides an individual's family with a payout
The top providers of Relevant Life Insurance
There are a number of providers of Relevant Life Insurance in the UK which is why we always recommend speaking to an independent advisor about the best policy for your company and employees.
These are the UK’s leading providers of Relevant Life Cover:
Want to learn about traditional life insurance?
If upon reading this article you’ve decided that Relevant Life Insurance isn’t the right fit for you, then we’d suggest reading another of our recent guides titled Best Life Insurance in the UK or get in touch and one of our advisors can help you find the right policy for you. Speaking to a life insurance broker can often save you time and money.