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Relevant Life Insurance

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Relevant life insurance can provide an efficient way for a company to provide death-in-service benefits to staff. In most cases, this type of benefit could be set up as a group scheme, but it can be expensive if there are not many staff. Relevant life insurance can be a helpful alternative.

It is a straightforward policy that allows businesses to provide an attractive benefits package to its employees.

What is relevant life insurance?

Relevant life insurance is a type of business life insurance that can provide individual death-in-service benefits to its employees. The policy is taken out by the business and will provide a lump sum to the employees’ dependents, should the employee pass away while working for the business. It may also offer a pay-out if the employee is diagnosed with a terminal illness.

Relevant life insurance is available to employees of a company registered in the UK, providing they have a contract of employment. For this reason, relevant life insurance may not be suitable for sole traders, as you are self-employed.

How does relevant life insurance work?

Relevant life insurance is set up on a life-of-another basis, which means the employer or business is the policy holder, and the employee is the person insured. Cover is calculated similarly to traditional life insurance policies, whereby the individual is assessed based on health, age and lifestyle to generate the monthly premium amount. This is paid by the business.

The amount of cover is usually set based on a multiple of the employee’s salary. The cover can be set with a fixed sum pay-out, or can be linked to inflation. This means the pay-out will reflect the cost of living at the time. It is important to note that the premiums would also change in line with inflation.

Relevant life insurance policies are written in trust. This ensures any proceeds are paid to the intended beneficiaries, which is usually the family of the employee. 

The maximum term of a relevant life insurance policy is to the age of 75. This is the usual option taken, but there is also the option for a shorter term if necessary. If the employee was to leave the business, there are two options. The employee can take over the policy personally, and it becomes a normal personal life insurance policy. Equally, the policy can be switched to a new company if needed. This type of policy is portable and flexible, if it needs to be.

Why take out relevant life insurance?

Relevant life insurance can provide benefits to both the employer and the employee. For the business, offering relevant life insurance as an employee benefit can offer a way of attracting and retaining staff. In competitive industries, this can be a huge help in your recruitment efforts.

Relevant life insurance is a business expense so the business is able to claim tax relief on the premiums and there are also no National insurance contributions to be paid by the employee or employer. It is also important to note that Relevant Life policies are not a P11D benefit and therefore do not affect the employees income tax position.

Taking out a relevant life insurance policy can also be helpful for high earning employees, who might exceed their lifetime allowance.

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