Relevant Life Insurance is effectively a life insurance policy that pays out a tax-free lump sum in the event of death during the policy term. Proceeds are paid to nominated beneficiaries not the company that pays for the scheme.
The premium is usually treated as an allowable business expense and is also NOT a P11D benefit. So your company pays less corporation tax and NI, thereby freeing up a little money which would ordinarily be spent on essential personal costs. Although classed as a company expense, if you decide to close your company down or leave, you have the option to take your policy with you. It will be converted to a standard term assurance plan at no cost.
As a matter of course your Relevant Life policy will be written into trust. Roxburgh would do this for you free of charge. This ensures;
- The policy is paid outside of your estate so inheritance tax is unlikely to be an issue
- That your policy qualifies as a Relevant Life scheme.
- The payment to the beneficiaries is swift as it can avoid a lengthy probate process
Typically there is no inheritance tax on benefit when placed in trust and the premiums and amount insured won’t count towards your lifetime pension allowance.
A £50 per month policy comparison for a higher rate tax payer being taxed at the highest rate of 45%.
Company Corporation Tax rate of 20%.
You or your family will only know the true value of a policy when you make a claim. Roxburgh advisers are here to deliver clear concise advice so that in the unfortunate event of a claim your policy delivers as expected.
Roxburgh Financial Management was set up to provide specialist help to people unsure how to go about choosing from the many Protection products available. For example, some providers allow continuation of cover that is easy for the life assured to transfer. This helps if there are multiple controlling shareholders.
Our specialists will help you to navigate all the options to find the cover that is right for you and your family at an affordable rate.
Six reasons to use us
- We do not charge for our advice
- We will explain the good, the bad, and the ugly
- We will ask the right questions
- We do all the work, right through to completing the application form
- We are independent and can access the full range of insurance providers
- We are regulated and authorised by the FCA
Types of Relevant Life Insurance
Finding the right one out of many types of insurance could be very tricky. Here are the different types of relevant life insurance suited for different needs and eligibility:
Level Term Life Insurance
A Level Term life insurance is the most straightforward type of plan available. The plan holder pays a premium usually each month to the insurance provider to ensure that an ‘agreed amount’ (the benefit) is paid out should the person insured die within the agreed number of years (the term) that the insurance is in place. Level Term life insurance is commonly used to pay off an interest only mortgage (as the debt remains the same over the life of the mortgage) or provide simple family protection.
Decreasing Term Life Insurance
A Decreasing Term life insurance starts off at an ‘agreed amount’ (benefit) and then reduces over the length of the term. The plan holder pays a premium usually each month to the insurance provider to ensure that the ‘decreasing amount’ (the benefit) is paid out should the person insured die within the agreed number of years (the term) that the insurance is in place. The amount you pay (the premium) is fixed throughout the term of them insurance (policy). The premium level is lower than that of Level Term Insurance due to the benefit amount decreasing. Decreasing life insurance is commonly used to pay off a repayment mortgage, with the term of the plan matching the outstanding term of the mortgage. The plan is designed to repay the outstanding mortgage balance subject to all mortgage payments being made, no alterations to the term throughout the plan and that the interest rate does not exceed a specified level.
Increasing Term Life Insurance
With Increasing Term life insurance a sum assured (benefit) is chosen which increases over time. An insurer is paid a monthly premium by the policy holder throughout the term to ensure that the ‘increasing amount’ is paid out should the plan holder die within the policy term. The sum assured will increase each year at an agreed rate, usually Retail Price Index (RPI) or the Consumer Price Index (CPI). This is called Indexation. As your benefit increases so does your premium. Indexation is chosen to ensure the purchasing power of your selected benefit is ‘future – proofed’ as it will increase as the cost of living will go up which is known as inflation.
Relevant Life Insurance Options
As with all things the more options you choose the higher the price. Relevant Life Insurance is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best Life Insurance policy available to you in the market place. Below are some of those options.
Guaranteed premiums can work in two ways. One type of guaranteed premium ensures that what you pay at the start of the policy term remains the same throughout unless you change the basis on which you are covered. Another type of guaranteed premium will still increase through the plan term but at a set rate determined at the outset of the policy. You can, therefore, calculate what your premiums will be in the future and have the certainty of knowing what you will pay without any unexpected changes in cost.
If you opt to have a premium which is not guaranteed then the premiums will be reviewable. Reviewable policies usually start cheaper than guaranteed policies, but will be reviewed at intervals set by the individual provider, often starting at the five year plan anniversary. Once reviewed the premiums may change up or down or they may stay the same but over the policy term, when compared to guaranteed premiums they may end up being more expensive.
Level or Indexed
‘Level’ means that the sum assured will remain the same throughout the policy term. Alternatively, the amount can increase each year in line with inflation using either the retail price index or the consumer price index. With some insurance providers this can be declined on an annual basis.
Waiver of Premium
If Waiver of Premium is selected then the provider will cover the premiums in the event of a plan holder being unable to work. The plan holder will no longer need to pay the premiums until they return to work or the selected pay-out period is reached.
If a renewable term is chosen then cover can be extended at the end of the original term for a set period of time, in some instances without the insured having to provide additional medical information.
Some specified pre-existing medical conditions may be covered by some insurance providers but others may not. There are also exclusions, specified by each individual provider, for example alcohol or drug abuse related deaths will may void the policy and result in non-payment of a claim.
If cover is provided on non-standard terms or even on smoker rates, and you change your lifestyle during the term in a way that you think should reduce the likelihood of a claim, for example you have stopped smoking, some providers will allow the cover to be reviewed mid-term.
A Convertible plan allows the plan to be converted to a Whole-of-Life policy without having to provide any further medical information. Premiums for this type of policy are higher at the outset than for standard life insurance policies. Once the policy converts to a Whole-of- Life plan the premiums are also likely to increase.
Cover Increase Options
There is often an option to change cover without further medical information if your circumstances change often due to a significant life event. Providers options vary but some examples are: marriage, divorce, increased mortgage amount, birth or adoption of a child, salary increase.
Accidental Death Benefit
Accidental Death Benefit will pay out if you die as a result of an accident while your application is being underwritten.
Terminal illness benefit will mean the Life insurance benefit will be paid out early if you are diagnosed with less than 12 months to live. Some providers will exclude this benefit in the last 12 or 18 months of the plan term whereas there are providers who will keep this benefit throughout the entire policy term.
If the insured leaves the company then the policy can convert to a personal plan. This will not be a Relevant Life Cover, and therefore will not have the same tax advantages. Alternatively, if the insured’s new employer is willing the policy can be transferred to the new company without the need for further underwriting.
It is a legal requirement that all Relevant Life policies must be written into a discretionary trust, as any pay-out must go to an individual or a charity. This means that any pay-out will not be added to your estate, and therefore not liable for inheritance tax (IHT). Putting your relevant Life Insurance into Trust not only means any pay-out is excluded from your estate for IHT purposes, which means that your family will not have to worry about an Inheritance tax bill, it also means they will get the money much quicker as they can bypass probate, which can take several months. When a discretionary trust is set up, the employee will name all of the people that may want to benefit from it in the future. They will also name the Trustees who will be the legal owners of the trust fund and responsible for distributing any pay-out or managing the trust fund if, for example, the beneficiaries are children and too young to manage themselves.