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.