Relevant Life Plan
So far, this series has focused on how life insurance and critical illness cover can help protect your business from the financial consequences of losing an owner, shareholder or key employee. However, this can be a two-way process. Small businesses can also provide a financial safety net for directors and employees, providing individuals and their families with the same insurance benefits. Here, it is the family that is protected, not the business.
One way to do this is with a Relevant Life Plan, which is a type of life cover that an employer can provide for its staff or the owners themselves. If the insured person dies, it is the family that receives the pay-out, not the business itself. This type of insurance is also sometimes known as a “death-in-service” benefit. Many larger employers have a policy that covers all their staff, but such “group schemes” are usually provided as part of the pension scheme.
For smaller businesses, perhaps employing just a couple of people, it isn’t always possible or cost effective to set up one of these collective policies. It’s important to remember that a Relevant Life Plan will only cover those who take a salary from the business.
If you are a sole trader, or a partner, you are not eligible for this type of insurance policy. However, this does not stop you buying regular life insurance out of your own income in the normal way.
For owners and directors of small businesses, a Relevant Life Plan can be a tax- efficient way to purchase life insurance, because this kind of cover is usually an allowable business expense that can be offset against corporate tax bills. So, a premium that costs £1000 would only in effect cost £810, once the 19% corporation tax is taken into account.
To buy this same £1000 insurance as a private individual, the owner of the business would need to pay themselves more than £1000 from the business. This is because any salary they take is subject to income tax and both employers’ and employees’ National Insurance – so to be left with £1000 after these charges, they would need to pay themselves a larger sum.
Get in touch with Scott at Sabre Financial today, on 01548 856444 or email firstname.lastname@example.org to discuss how we can help protect you, your business and your family.
Sabre Financial is a trading title of Sabre Financial Planning Ltd. Sabre Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.
By Sabre Financial | Tuesday, May 08, 2018