The Business End of Life Insurance
Life insurance is vital to ensure the safe continuation of any small company in case of the death or terminal illness of a director or key employee.
In the vast majority of corporate cases, Relevant Life Cover (RLC) is the most tax efficient means of guaranteeing a secure future in the event of an untimely loss.
RLC does not attract any liability for National Insurance (NI) from either the individual or the company.
From the insured person’s point of view, the premiums are paid by the company, not regarded by HMRC as a ‘benefit in kind,’ and not liable to income tax; nor do they form part of the individual’s annual allowance for pension contributions or lifetime allowance for pension savings.
From the company’s standpoint, the premiums are usually deductible against corporation tax.
Compared with ‘non-relevant’ life cover, which attracts employee and employer NI contributions as well as income tax liability, an RLC policy will offer yearly net savings which amount to several thousands of pounds over the life of the plan.
RLC comes in two types of cover. Level policies, with a fixed annual premium, deliver a fixed payout with no regard for inflation. Inflation-linked policies, with premiums that go up every year, offer payouts that rise in line with whichever cost of living index is chosen.
RLC policies are written into trust for the benefit of the employee’s family, and on the death of the insured person the policy will pay out a tax-free lump sum to the named beneficiaries.
RLC covers only death or terminal illness, and cannot be extended to include any other provision(s). Each RLC policy is set up individually and can only be taken out by an employer to insure an employee when both are permanently resident in the UK, and the employee is aged between 17 and 69.
Premiums typically begin at £5 per month with no minimum level of cover, but most insurance companies impose an upper limit of £10million, or 25 times the value of the employee’s earnings, whichever is lower.
Small companies who have not yet explored the option of RLC should look into this tax-efficient way of providing death-in-service benefits for their directors and key employees.
For more information about RLC and the services available from Lansdell & Rose please call on 020 7376 9333.