Protection planning is arguably the most important aspect of financial planning. If you have a family who rely upon your income or if you have mortgage debts that need to be serviced, life cover is often wise.
Contracts vary in terms of cover depending on what the cover is taken out for. Some will pay a lump sum on death, while some will pay out in the event of a critical illness; the sum could be for the purposes of paying off a mortgage, supplementing lost income of for Inheritance Tax Planning.
There are also various options in terms of policy owner, how long the term of the policy is and whether the premium is on an increasing, decreasing or level basis. Today I shall be shining the spotlight on a tax-efficient form of life cover that pays out a lump sum upon death.
If you require standalone life cover and have a limited company you may be able to take out Relevant Life Cover.
What is Relevant Life Cover?
Relevant life cover is a death in service benefit that works exactly the same as regular Life cover: it is taken out for a fixed term with a fixed monthly premium. It will provide a lump sum if you die before the policy expires.
Here’s where it differs: premiums are a tax deductible expense for the company. Relevant Life premiums are paid by the company, and therefore count as a business expense.
The plan is taken out with the company as the owner and premium payer and you are the life assured. It is then held under a Discretionary Trust, which will normally have your next kin as beneficiaries.
One benefit of relevant life is that if you leave the company you can have the cover assigned to you, and there is no need to have the cover underwritten again, which might result in a higher premium.
Bear in mind that relevant life cover is only suitable for those who are employees of a company: sole traders, members of a partnership and members of a limited liability partnership (LLP) cannot have relevant life.
Who is it for?
If you are the Director of a company and wish to take out life insurance for yourself relevant life might be cheaper than setting up a group life insurance scheme.
Similarly, if you run a company with a small number of employees and wish to provide life cover for them relevant life might be beneficial, as often setting up a group scheme is not possible.
Want to know more?
If you think that you might benefit from relevant life cover, please get in contact with us.
Don’t forget the ever-important risk warnings:
- Your plan has no cash-in value at any time.
- If you stop making payments, the plan and your cover will end and you will get nothing back.
- You must give full and honest answers to the questions asked in support of the application and during the policy term. Failure to do so may negate the insurance benefits.
- Inflation may affect the real value of any insurance claim.