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Let the tax man pay your life insurance
There are many types of life insurance on the market right now, and as such, it can feel a little overwhelming trying to choose which type is going to meet all of your needs. However, something that you might not have heard of before is relevant life cover, and that is what we are going to be talking about in this article. If you keep reading down below, you are going to find all of the information you need about relevant life insurance including what it is, who it is aimed at, some of the cover options, and other key pieces of information that you are going to need to help you make your final decision. So, let’s take a look!
What Is Relevant Life Insurance?
So, first, we need to look at what exactly relevant life cover is. Relevant life cover allows an employer to offer a death-in-service benefit to their employees. This is a very tax-efficient life insurance policy as what happens is that if a person dies while working for a company, the company will pay out a tax-free lump sum of money to the person who is insured. Obviously, as they are no longer going to be around, it goes to the family or any financial dependents that the employee may have had.
It is set up by the employer to ensure that if something does happen to one of their employees, the family or financial dependents have some kind of money to fall back on. Times can get hard when someone passes away, and worrying about finances is the last thing you want your family to be doing so this is an efficient plan to avoid this. As well as death-in-service, relevant life cover also covers the diagnosis of a terminal illness.
Who Is It For
This kind of cover is for employers to set up to make sure that their employees have some kind of security blanket for their family should anything happen to them while they are working. So, if you are an employer and you are looking to offer some kind of death-in-service scheme to your employees, but you don’t have enough to set up a group scheme, this could be ideal for you. Or, if you want to offer some of your employees this kind of benefit, without having to take out a scheme that covers all of the employees.
There are some salaries where death-in-service does not form part of their lifetime allowance, and if this is the case than relevant life cover could be a good option. This is mainly for high earning individuals who earn over £1.5 million.
Key Pieces Of Information
There are some things that you need to know about relevant life cover, such as some of the restrictions on it and terms that you might not already know about. One of the first things that we need to look at is that it must be written into a discretionary trust. This is important; otherwise, the company that is providing you with cover then there is a chance they will not pay.
Something else that is important to note is that your provider won’t pay a claim if the employee takes their own life within the first 12 months of the policy. If someone intentionally takes their own life during this 12 month period, then the cover becomes void, and there will be no payment issued to any dependents or family members. As well as this, the person who is covered under the insurance must be a UK resident and covered by a UK business. This type of cover is not offered to anyone who is working for a non-UK business or if they are not a citizen of the UK.
A final thing that you need to be aware of is that you can not get relevant life cover if you are a sole trader or a partnership company. However, even though this is the case, you can get a PAYE to set up the insurance if you are a sole trader who wants this kind of death-in-service benefit. The reason for this is that this type of cover is not available where there is some kind of employee/employer relationship. The two need to be completely separate for you to qualify for this kind of cover.
What Are Your Cover Options?
Different companies will offer you different cover options, and there will always be a maximum cover limit. Some companies choose to set their insurance in terms of a multiple of salary, but some providers would urge you to consider the age and yearly earnings instead. At the end of the day, it is down to the employer to decide what kind of cover they want to provide their employees with, but you should discuss with the insurance provider what they would recommend and why.
Why Is It Cost Effective?
So, why is relevant life cover a cost-effective solution? Well, the lump sum that is paid out to your family or financial dependent is completely tax-free, meaning that the tax man cannot touch a penny of it. Relevant life cover can work out much cheaper than your typical life insurance policy, and it provides you with a safety net of money to provide for your family should anything happen to you on the job. It is a tax efficient benefit that comes from the employer to the employee and means that you could be saving a lot of money on getting yourself life insurance. As this is a policy that is paid for by the employer, the saving that an employee could be making is significant.
We hope that you have found this article helpful, and now understand more about relevant life cover, what it means, and how it could benefit you as an employee and an employer. If you do have any more questions about this, then contact a relevant life cover provider, and they will be able to give you all the information that you need.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.
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