In today’s world, having life insurance is a key part of financial planning to ensure that your loved ones are taken care of in the event of your passing. However, for business owners or high earners, traditional life insurance policies may not always be the best fit. This is where relevant life cover comes into play.
what is relevant life cover, also known as relevant life insurance, is a type of life insurance policy that is designed specifically for individuals who are considered high earners or directors of small businesses. This type of policy is typically set up and paid for by the employer as a tax-efficient way to provide life insurance for the employee.
So, what exactly is relevant life cover and how does it work? Let’s delve into the details.
Relevant life cover is a life insurance policy that is taken out on the life of an employee by their employer. The policy is written into trust for the benefit of the employee’s chosen beneficiaries and is paid out as a tax-free lump sum in the event of the employee’s death. This type of policy is set up outside of the employee’s estate, which means that it is not subject to inheritance tax.
One of the key benefits of relevant life cover is its tax efficiency. Because the policy is paid for by the employer, the premiums are typically treated as an allowable business expense and are not subject to income tax or national insurance contributions. This can result in significant cost savings for both the employee and the employer compared to taking out a personal life insurance policy.
Another major advantage of relevant life cover is that it is not considered a taxable benefit in kind for the employee. This means that the payouts from the policy are not subject to income tax, making it a tax-efficient way for high earners to provide financial protection for their loved ones.
In addition to the tax benefits, relevant life cover can also offer flexibility in terms of the level of cover provided. Employers can choose the amount of cover based on a multiple of the employee’s salary, with some providers offering cover up to a maximum of 15 times the employee’s annual salary. This can provide employees with a higher level of protection than they may be able to obtain through a personal life insurance policy.
It’s important to note that relevant life cover is not suitable for everyone. This type of policy is specifically designed for high earners or directors of small businesses who may not be able to access traditional life insurance policies due to restrictions on the level of cover available or concerns about the tax implications.
If you are considering relevant life cover, it’s important to speak with a financial advisor who can help you determine if this type of policy is the right fit for your needs. They can also help you navigate the complexities of setting up and managing a relevant life policy to ensure that you have the right level of cover in place to protect your loved ones.
In conclusion, relevant life cover is a tax-efficient way for high earners and business owners to provide financial protection for their loved ones in the event of their passing. By working with a financial advisor, you can determine if this type of policy is the right fit for your needs and ensure that you have the appropriate level of cover in place.