If you run your own business and currently have in place life insurance to secure and protect loved ones, you could also make a substantial tax saving on premiums by having what is known as ‘relevant life insurance’
When comparing to personal life cover, Company Directors paying 40% personal income tax could save up to nearly 52% on life insurance premiums and up to 36% saving to those on 20% tax rate. This means a £50 per month life policy could save around £7,800 over 25 years by choosing relevant life cover instead.
The difference with a relevant life insurance is that it is paid for by your business, meaning it's eligible for tax savings. Relevant life insurance premiums are tax deductable as an expense, and because they are not treated as a P11D there are no implications on the amount of personal tax you pay. In essence Relevant Life Insurance is the same as most common types of life cover in that it pays out a lump sum if the person passes within a set period.
When this policy is paid through your business, there are no NI implications and the benefit paid out under this policy is not registered with HMRC so does not form part of your pension. The benefit is also paid tax-free, so a tax saving on one place will not have a knock-on effect and cost you elsewhere.
The importance of any life cover is the policy being written under a suitable trust, which has added benefits when a claim is made. The policy must be written under a specialist ‘relevant life trust’ which the advisor should do with no charge,
The trust behaves in the same way as a discretionary trust for personal life cover. It ensures that any claim is paid promptly to the listed beneficiary without having to wait for probate, and also that the policy benefits remain outside of your estate, and therefore, are not eligible for inheritance tax.
For a relevant life plan to be paid through your business it must only cover the death of the policyholder. There are restrictions on the amount of life cover that you can take out, but this is set at up to 15 times your total remuneration, including salary, dividends and P11D benefits. For a relevant life plan to be paid through your business it must only cover the death of the policyholder.
There are many UK insurers that sell relevant life insurance, but the premium can vary greatly. Some contributing factors to variations could be your occupation, general health and lifestyle. These can all have a significant impact on how much an insurer will charge and the terms of the policy. An advisor will be able to recommend the best value cover and go through the savings you can make when compared to personal cover.
Quotes shown are for a 40 year old male who doesn’t smoke. Policy is £100,000 life insurance cover for ten years with a fixed premium. Example is for illustrative purposes only and was correct on 21/11/2016.
The most common form of protection, ordinary term life cover pays a lump sum to your family if you die within a certain time-frame. Most policies will also pay-out if you’re diagnosed with a terminal illness and have less than twelve months to live
Critical Illness Cover provides a cash lump sum if you suffer from a range of serious conditions within a set time-frame. The money is normally used to pay the bills and provide financial security while you’re on the road back to health
If something serious happens to stop you working - for months, years, or even for life – you’ll want to know you have financial security and that the bills are paid. Income Protection gives you just that, paying a percentage of your income all the time you’re unable to work.
The NHS is groaning under the weight of the UK obesity crisis and newer, more effective medical treatments for a range of illnesses often aren’t available. Private medical cover makes ‘going private’ much more affordable – giving you access to more treatments, shorter waiting lists, and first-class care.
Most company directors are savvy enough to have life insurance, but very few realise they can save up to 53% by taking advantage of a Relevant Life plan.
Group Life and / or Health Cover is the most cost-effective way to provide peace of mind and financial security for the families of your employees.
Key Person Insurance - often called Key Man Cover - is an insurance policy bought and owned by a business to protect its own interests. Cover is provided in the event that an important staff member is suddenly unable to work through critical illness and/or death.
Shareholder Protection Insurance is designed to give you peace of mind in the event that a shareholder in a Limited Liability Company, a member of a Limited Liability Partnership (LLP), or a partner in a partnership dies or is diagnosed as critically ill.
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