The relevant life policy is considered to be one of the most feasible options for employers who want to set up a death-in-service benefit for their employees in a tax-friendly manner. If the employer seeking the benefits fulfills certain legislative requirements, then he can easily secure a relevant life insurance cover and save a few pounds. We will find out more about that later on. But, let us, at first, learn about the requirements that need to be fulfilled in order to secure this policy:
- The employer seeking these benefits should have a company with directors
- A sole trader can also secure them
- He should be the owner of a limited company or a partnership or limited liability partnership company
- The employer should be the owner of a small company that does not have many employees so as to qualify for a group life scheme
- It is a standalone cover that offers a lump sum to the family of an employee in the event of his death
- A critical illness cover can’t be added to this policy
- The policy does not have a surrender value
- The payouts of the policy are made through a trust set up by the carrier
- The relevant life providers can offer a cover that is generally around 15 times your yearly remuneration (here the remuneration includes bonus, salary, and any benefit in kind, which is subject to tax restrictions)
- The policy does not provide protection to the insured person after he celebrates his 75th birthday
Now that you have acquired a general idea about the functionality of a relevant life cover, let us explore its benefits as well:
- The employer receives substantial tax relief while paying the premiums
- High-earning employees can keep the benefits separate from their lifetime pension funds
- The benefits are not subject to any Inheritance Tax except in some cases where the trust can be levied with a periodic tax charge
- The policy is free of the National Insurance obligations
- If the local tax inspector is convinced that the premiums paid are “wholly and exclusively for the purpose of trade”, then these premiums can be treated as trading expenses, whereby the employer will get considerable tax relief
- You can draft a letter of wishes mentioning in a clear manner how you want the money to be used by your beneficiaries. For instance, your wife or sister or brother can act as a trustee and your children as the beneficiaries. The provision for a letter of wishes means that you are able to document clearly how you want the money to be spent (here, you may only want your children to spend the money for higher education or for buying a property) or else when you want your beneficiaries to use the money (here, you can set an age limit before which they will not be able to get their hands on the money).
Relevant Life Policy- Some More Information
Who all are there in the trust?
The employer is definitely one of the trustees. But if a sole trader is seeking the benefits of this policy, then an additional trustee will be required. However, it is advisable that the officer of the company (i.e. the company secretary, director or co-partner) becomes a trustee here. The employee himself can act as the additional trustee. However, in this case, the need for another additional trustee will arise when the employee dies. It is important for a trustee to be more than 18 years of age.
How should you choose a relevant life cover?
Please go through the websites of at least 4-5 insurance carriers offering relevant life insurance. Use the relevant life calculator to compute the differences between the gross costs of an ordinary insurance policy and those of a relevant life policy.
Author Bio: Sam Payn is a passionate blogger who has plenty of highly informative financial write-ups to his credit. You will find several of his researched blogs on insurance in various websites.