A question was asked in the October 2015 AFS exam as regards how a company can put a life cover in place for the benefit of the family of its employee.
In a situation where the company is too small and the benefit is not provided in form of a group life scheme, setting up a life cover in this case is referred to as a Relevant Life Plan, also called relevant life cover. This is something that is often mentioned by people, even in the real world, not just in the CII world.
What does Relevant Life Plan mean?
A Relevant Life Plan is mainly used for a term assurance cover that provides benefits to the family or loved ones of employees that die in service in a tax efficient way. For a business to use this plan, there must be an employee-employer relationship; therefore, sole traders, partners or limited liability partnerships are not meant to benefit from this plan.
An RLP is a personal policy in which the employee is referred to as the life insured while the employer is known as the policyholder. Just like in tradition death in service policies, the sum insured on behalf of the employee is the multiple of salary, with some providers offering as much as 25 times the salary for younger employees with the money decreasing as they grow older. To ensure that the payment of the money is made quickly to the right person without any need for probate while IHT is also avoided, the policy is written under a discretionary trust. If the employee dies while still in service, the money is paid quickly to the trustees, who are then saddled with the task of paying to the previously named beneficiaries.
Employer will be the one to pay premiums and this offers the benefits of it being treated as part of the expenses of the business by HMRC.
The pension lifetime allowance of the employee is unaffected by the benefit payments and there is no need for premium to be paid by the employee on a benefit in kind.
RLPs – a Good Way out for High Earners and Small Business; RLPs can be rightly seen as a good solution for high earners that feel the pension lifetime allowance would not be enough and a small business looking for a way to offer life cover to their directors and employees without being forced to make large payment needed to run a group life scheme.
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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