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Relevent life insurance – protecting your employees

Many business owners would like to offer life insurance as a perk but setting up a group scheme can be expensive, especially when there are not many staff.

Relevant Life Cover (RLC) is a type of death in service benefit which is set up and paid for by a company and pays out a tax-free lump sum on the death (or diagnosis of a terminal illness) of the insured person. The proceeds are paid to the employee’s family or financial dependants.

What are the benefits of a RLC?

Tax-efficient

For the employer, the premiums are normally a tax-deductible business expense. Whilst a group life scheme can often work out cheaper for larger groups, businesses with a smaller number of staff or with fewer staff who would qualify, RLC allows business owners and directors to insure themselves via the business as well as providing a benefit to key employees.

As well as reducing the corporation tax bill, RLC is a good way of attracting and retaining staff as it demonstrates that the employer cares for the well-being of the employee’s wider family.

Employees’ benefits

Employees have life insurance without having to pay any premiums, although depending on the level of cover they might still wish to have their own additional policy. A major attraction for many business owners is that they can take out cover, paid for by the business rather than out of their own PAYE income.

RLC could benefit high earning employees as an alternative to joining a group life scheme. This is because some group life schemes count towards the annual pension lifetime allowance – £1,073,100 for the 2020/21 tax year.

Payouts under a registered group life scheme count towards the lifetime allowance together with the employee’s pension funds which will mean a tax bill if the total is over the lifetime allowance. RLC gives employees the reassurance that their beneficiaries will be looked after, with a tax free payment.

Key features

The cover is set up within a discretionary trust on the life of the employee.

Employers usually opt to set the amount of cover as a multiple of the employee’s salary. The premiums are normally tax-deductible business expenses, unlike some group schemes. The guaranteed premiums are paid monthly and the benefits are usually free from inheritance tax.

Similar to a life insurance policy, the cost of RLC depends on the age, lifestyle, health and level of cover of the individual.

Flexibility

The employer can usually increase cover for their employee without any additional underwriting within certain limits if they increase their mortgage as a result of moving house or make home improvements, get married or enter a civil partnership, have or legally adopt a child, get divorced or have an increase in salary.

Get in touch

To discuss relevant life insurance for your business, contact our team of experts today, email enquiries@cowgills.co.uk.

Disclaimer

The information was correct at time of publishing but may now be out of date.

Wealth Management
Posted by Chris Harrington
16th July, 2020
Get in touch with Chris Harrington