When it comes to protecting your team and their loved ones, choosing the right kind of life cover isn’t just a personal decision – it’s a strategic business one. In the UK, two common options are Life Insurance and Relevant Life Insurance. While they may sound similar, they serve different purposes and offer distinct advantages – especially for companies looking to support their employees in a tax-efficient way.
Let’s explore how Relevant Life Insurance could benefit your business.
What Is Life Insurance?
Life Insurance is a personal policy taken out by an individual. It pays a lump sum to their chosen beneficiaries if they pass away during the policy term. This payout helps cover:
• Mortgage repayments
• Living expenses
• Funeral costs
• Children’s education
While the payout is typically tax-free, it may be subject to Inheritance Tax, depending on how the policy is structured. That’s why personal life insurance is best suited for individuals looking to protect their families.
What Is Relevant Life Insurance?
Relevant Life Insurance is a business-owned policy that provides life cover for employees, including directors. It’s ideal for small businesses that want to offer protection without the complexity or cost of a group scheme.
Here’s why it’s a win-win for both employer and employee:
Tax Efficiency
• Corporation Tax Relief: Premiums are usually considered an allowable business expense.
• No Benefit-in-Kind Tax: Employees don’t pay income tax on the premiums.
• Inheritance Tax-Free Payout: The policy is written in trust, so the payout goes directly to the beneficiaries without forming part of the employee’s estate.
Cost-Effective Protection
• Directors can benefit from high levels of cover at a lower net cost compared to personal life insurance.
• Businesses can offer a valuable benefit to employees without increasing salary costs.
Attract and Retain Talent
• Offering Relevant Life Insurance shows you care about your team’s wellbeing.
• It’s a powerful tool for recruitment and retention, especially in competitive industries.
A Quick Note on Tax
While Relevant Life Insurance offers significant tax advantages, the exact treatment depends on your company’s circumstances and HMRC guidelines. It’s always wise to seek independent tax advice to ensure your policy is set up correctly and aligns with your financial strategy.
Final Thoughts
Relevant Life Insurance isn’t just about peace of mind – it’s about smart business planning. Whether you're a director of a limited company or an SME looking to enhance your employee benefits, this type of cover can deliver real value. Chatting with a protection consultant is a great way to find a solution that’s tailored to your needs.
