Should I take out a Relevant Life Policy as a Company Director?

As a company director, we know that you want to ensure you have comprehensive life cover, without it costing a fortune in premiums or taxes. One of the most cost-effective and tax-efficient ways to do this is through a Relevant Life Policy. This type of insurance offers a tax-efficient way to provide life cover through your limited company, rather than paying for Personal Life Insurance from your post-tax income.

There are many benefits to Relevant Life Insurance for directors, although there are also several factors to consider too. Let’s explore the key benefits and considerations to help you decide whether Relevant Life Insurance is the right choice for you and your company.

What is Relevant Life Cover?

Relevant Life Insurance is a type of cover that pays out a lump sum to your beneficiaries should you pass away unexpectedly. The premiums for this insurance are paid for by the company, which makes it more cost-effective for you as an individual. There are also various tax advantages to Relevant Life Insurance for directors. You get Corporation Tax relief on the premiums, which reduces the company’s taxable profits. You also don’t need to pay Income Tax on the premiums, as it isn’t considered a P11D benefit in kind.

If the Relevant Life Insurance is put in a discretionary trust, the lump sum payment paid to your beneficiaries in the event of your death or terminal illness will be tax-free. This means that the cover is more tax-efficient than Personal Life Insurance options.

How does a Relevant Life Plan Work for Company Directors?

Relevant Life Insurance for company directors is a great way to get tailored life cover, while also offering tax benefits to your company. The cover for Relevant Life Insurance is typically higher than Personal Life Insurance, which provides greater financial support for your family should the worst happen. The maximum cover for Relevant Life cover is typically 15x to 25x your total earnings, including your salary and dividends. If you become terminally ill, the insurance money can also help your family pay for your medical care.

The maximum cover is also usually based on your age. For example, if you are aged between 17 and 29, you might get a maximum 25x remuneration or a maximum remuneration of 15x your earnings if you’re over 60 years old. The insurer may charge more for premiums if you have preexisting health conditions, such as a history of heart problems or diabetes. You may also find that there is an age limit on the policy.

The company owns the Relevant Life Insurance policy and pays for the premiums. Unlike other types of employee benefits, you don’t have to pay extra tax on the premiums as it isn’t considered a P11D benefit in kind. The lump sum is also usually free from Income Tax & Inheritance Tax if it has been placed in a discretionary trust. This means your family get more of the insurance money should you pass away.

Why is Relevant Life Insurance Perfect for Directors?

Not only does Relevant Life Insurance for directors reduce your personal expenses of paying for life insurance, but it also maximises the business’ tax benefits. The premiums are paid for by the company, which means you don’t have to pay for life insurance from your post-tax income. Unlike pension-linked life insurance, Relevant Life Cover doesn’t reduce your pension lifetime allowance, which is ideal for directors with high salaries.

Unlike Personal Life Insurance, Relevant Life Insurance for company directors isn’t considered a P11D benefit in kind, meaning you don’t have to pay additional Income Tax or National Insurance contributions. The lump sum payout is usually free from Inheritance Tax, as long as it’s written into a discretionary trust.

Relevant Life Insurance for company directors is a flexible option. If you step down as director or close your company, the policy can often be converted into a personal plan to continue your coverage.

This type of insurance can also make an affordable alternative to group life insurance if your company is small, as group life insurance can work out expensive unless you have a larger business. Relevant Life Cover typically offers more cover than Personal Life Insurance and is usually more affordable too.

Considerations for Relevant Life Insurance for Company Directors

While Relevant Life Insurance for company directors is a tax-efficient and cost-effective solution for directors, you should also be aware of some of its limitations. Unlike some personal life insurance policies, Relevant Life Insurance doesn’t include Critical Illness Cover (unless bought as an add-on). This means that if you become seriously ill but don’t pass away, the insurance won’t pay out. You’d need to add or buy separate Critical Illness if you want to be insured in case you are diagnosed with a serious illness by a doctor. This would cover you if you become sick and unable to work due to a serious illness such as cancer, a stroke or heart disease.

There is also typically an age limit on Relevant Life plans. In most cases, you can’t get insured if you are over 75 years old. If you are already insured under Relevant Life Insurance and continue working past the age limit, you’ll no longer be insured by the insurance policy.

Another factor to consider is that Relevant Life Insurance is for individual cover only. The insurance can’t be used to insure multiple employees and doesn’t cover your partner or spouse. You would need to get separate policies if you want to insure more people.

Relevant Life Insurance is a death-in-service benefit, meaning it only pays out if you pass away while employed by the company. If you resign, you may need to transfer the policy so that it insures you at your new company. However, you should remember that Relevant Life Insurance can only be used to insure directors and employees of limited companies. Sole traders and partners in a partnership cannot take out a Relevant Life policy.

You can use our handy Relevant Life Insurance calculator to help you compare the net cost of a Personal Life Insurance policy against Relevant Life Insurance. The calculator will need your annual premium, salary, Corporation Tax rate and coverage amount to estimate the savings you could make with a Relevant Life Insurance plan. The calculator will provide a clear estimate of the potential tax savings you could make by switching to an eligible Life Insurance policy. 

Who qualifies for Directors Relevant Life Insurance?

To be eligible for Relevant Life Insurance, you need to be a UK resident and working for a UK-based company. You must also be a company director, employee or contractor at a limited company (including full and part-time employees). While partners of LLP (Limited Liability Partnership) aren’t eligible, their salaried employees can be covered by Relevant Life Insurance.

Sole traders aren’t eligible for Relevant Life plans as they’re not employees of a company. Contractors also don’t qualify for Relevant Life Cover if they’re operating as a sole trader or under an umbrella company.

Limited companies must set up the Relevant Life insurance policy and pay for the premiums. The policy must also be written in a discretionary trust to ensure the money’s tax efficiency and Inheritance Tax exemption. Relevant Life Insurance is also used for Life Cover, so you’ll need to get a separate policy for Critical Illness Cover.

In most cases, employees need to be at least 17 or 18 years old to be eligible for Relevant Life Insurance. The policies also tend to have a maximum age, although the exact age can vary from policy to policy.

Take Out Relevant Life Insurance for Your Business Today

Relevant Life Insurance for company directors could be a great option for you and your company. This type of insurance policy a tax-efficient life cover option for directors and employees alike, as long as it is used properly. If the money is put in a discretionary trust, the lump sum payment is exempt from Inheritance Tax. The policy is owned by and the premiums are paid for by the company, which are counted as tax-deductible business expenses. As the policy isn’t considered a P11D benefit in kind, you don’t have to pay additional Income Tax or National Insurance contributions on it.

If you’d like to find the best Relevant Life Insurance for you and your company, get in touch with us at www.mykeymaninsurance.com. You can get a free quote to find the right policies to suit you and your employees. We’ll compare various insurers and policies to help you find the best one for you and your company’s unique needs. Our helpful team will also be more than happy to cover any questions you have about Keyman Insurance tax and Relevant Life Insurance tax. Give us a ring on 02071128844 or email info@mykeymaninsurance.com to find out how we can help you find the best insurance.