5:55 pm - Friday December 15, 2017

How to Judge the Suitability of Relevant Life Insurance for Your Business

The relevant life policy is a type of death in service benefit that is sponsored by the employers of small businesses with the employees being named as the insured. The policy is particularly suited for small companies as they generally don’t qualify for the tax efficient group life schemes.

If you are an entrepreneur of a small business and are mulling a death in service benefit for your employees you should first try to judge the effectiveness of a particular policy by going through its features and comparing it with other types of insurance cover.

Relevant Life Insurance

Listed below are the basic features of the relevant life policy, that one should be duly informed about. However, prior to that, let’s explore the reasons why one should give more preference to this cover over traditional life insurance.

Comparison with Traditional Life Insurance Policy

In case you are considering the aid of a conventional life cover, the premiums might as well be subject to serious tax liabilities, whereby you might be forced to pay up from your own post tax income. On the other hand, a relevant life policy is characterized by a number of tax advantages whereby you will be able to save up  thousands of dollars. The tax benefits of the cover will be discussed in the course of the article. Before that, take a look at the key features of the policy:

The cover can be secured by directors of limited companies.

Relevant life insurance provides protection till the client completes 75 years of age.

There is no provision for critical illness or income protection.

The policy doesn’t have a surrender value. If you stop paying money from the middle of the term then the policy will simply be revoked. No money will be refunded in that case.

The benefits are paid through a discretionary trust. There are some insurance carriers that might need the trust to be set up even before the cover is issued.

It is particularly designed for high-earning employees with sufficient pension funds. They can keep the benefits separate from their pension allowances.

The insured can choose to leave behind a letter of wishes stating clearly when he wants his nominees to receive the payout. The trust will keep the contents of the letter in view while paying out the benefits, though it is not legally binding.

Tax Benefits

The employer will be entitled to substantial tax benefits while paying up the premiums of the policy as they are not treated as benefit in kind.

The lump sum received as the benefit by the family of the insured after his death, is tax-free as well.

Neither the employee nor the employer is required to fulfill the National Insurance obligations

Relevant Life Cover

The best way to judge how suitable will be this cover for you as a businessman, you should make use of the relevant life calculator thereby computing the differences in gross costs involved in the relevant life cover and the traditional life cover. You can do this by inserting the following data:

  • Premium
  • Whether the premium is paid from dividends or not
  • Employee income tax rate
  • Company corporation tax rate
  • Employer national insurance rate
  • Employee national insurance rate
  • The insured’s highest rate of tax

Author Bio: Sam Payn has been an avid blogger, documenting his views on contemporary economic situation in the world since quite a long time.


Filed in: Insurance

Comments are closed.