Relevant Life Insurance
Are you a director or senior employee of a company? Do you need to arrange life insurance to protect your family? Would you like to do this in a really tax efficient way? Then you should consider the use of a Relevant Life Policy (RLP).
This section will give you the background information you will require before approaching an insurance company for a quotation.
What is Relevant Life Insurance?
Relevant life insurance:
- is a term insurance policy effected by an employer on the life of an employee and funded by the employer,
- provides for a lump sum benefit payable on death before age 75.
- is pure insurance and therefore does not have a surrender value at any time,
- is effected by the employer subject to a trust under which only individuals and charities can benefit.
What are the benefits of Relevant Life Insurance?
Relevant life insurance can provide significant benefits:
- Premiums paid by the employer will generally be treated as a business expense for tax purposes (if they satisfy the ‘wholly and exclusively’ test).
- The premiums paid by the employer are not treated as a benefit in kind and therefore you as the employee will not suffer tax on them. The proviso is that the premiums are not paid under a salary sacrifice arrangement and thereby really being paid by you.
- The premiums are not taken into account in determining your available Annual Allowance, i.e. the amount that can be contributed by or on behalf of an individual to any registered pension scheme with the benefit of tax relief.
- There will be no National Insurance contributions on the premiums for either you or your employer, provided again that the premiums are not paid under a salary sacrifice arrangement.
- In the event of your death the sum insured will be paid free of income tax.
- In the event of your death the sum insured will not count towards your pension Lifetime Allowance unlike typical death-in-service pension benefits.
- While the death benefit is payable through a discretionary trust generally it will be paid free of inheritance tax and will not form part of your estate for inheritance tax purposes.
Who is Relevant Life Insurance suitable for?
- For those employers who, perhaps because of the smaller size of their business, do not wish to set up group arrangements for all their employees or wish to provide additional benefits to individual employees.
- When the employer wishes to provide tax-efficient additional benefits on death in service.
- Relevant Life Insurance can only be used by employers (whether trading through a partnership, a limited liability partnership, a limited company or a sole trader) who are applying for a new plan on the life of an employee. The term ’employee’ would include a director or officer of a company but does not include a partner in a partnership, a member of a limited liability partnership or a sole trader.
When is Relevant Life Insurance not suitable?
- When the life to be insured is not an employee.
- When it is intended to provide benefits beyond age 75 and beyond the period of employment.
- When it is intended to provide benefits other than just death before age 75 and ill-health, disablement and death by accident benefits whilst in service.
What if I leave my employer?
If your employer has arranged Relevant Life Insurance for you and you leave that employment four options are available:
- You can transfer the policy into your own name and it will become like a normal life insurance policy’
- You can keep the existing policy and trust in place and take over payments from the employer.
- Your new employer can take over the premiums immediately.
- You can pay the premiums for a while and then your new employer can take over the premiums.
There is no time limit in respect of these options.