Relevant Life Cover, approved by HMRC in 2009, provides employees (including Directors) with a tax-efficient means of obtaining life cover.
Before the introduction of Relevant Life Cover, tax-efficient life cover was only accessible to employees through group death-in-service benefit schemes, typically limited to large employers. This left small and medium-sized businesses unable to offer such benefits to their employees.
Relevant Life Cover is often structured based on either a budget or a multiple of the individual’s salary, including dividends and P11d benefits. It is a policy paid for by the business but placed into a trust to benefit the nominated beneficiary.
One of the significant advantages of Relevant Life Cover is that the business can claim Corporation Tax Relief on the monthly payment, while the covered individual is not subject to a P11d tax (benefit in kind) on the policy. Additionally, the individual benefits by not having to pay the premium from their net income, which would otherwise be subject to National Insurance and Income Tax deductions before they can afford the policy.
The lump sum payout from the policy is directed to the beneficiary via a trust, ensuring it does not become part of the business or the life assured’s estate. Alongside the tax benefits associated with the monthly cost of the policy, this arrangement makes Relevant Life Cover the most tax-efficient method to finance life cover currently available.
Notably, the standard cost of Relevant Life Cover is comparable to that of a regular Level Term Assurance policy, with no additional expenses incurred for utilising this type of coverage. Once the tax savings have been factored in, the overall cost is often around 50% of the expense associated with personal life cover.
By considering Relevant Life Cover, businesses and employees can enjoy the tax advantages and cost savings it offers, while ensuring valuable life cover protection for the benefit of nominated beneficiaries. Seeking advice from a specialist can provide further clarity on the suitability and implementation of Relevant Life Cover for specific circumstances.