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What is Relevant Life Insurance?

Relevant life insurance is a type of life insurance for employees and directors.

A relevant life policy is a type of life insurance specifically designed for small businesses. It provides a death-in-service benefit, meaning if an employee dies while employed by the company, a lump sum payout is made to their family or chosen beneficiaries.

Relevant life insurance is particularly beneficial for:

  1. Small to medium-sized businesses of 1 to 6 employees.
  2. Directors of limited companies.
  3. High-earning employees who have maximised their pension contributions.

One of the great features of relevant life insurance is its tax efficiency. The premiums are usually considered a business expense, which can be offset against corporation tax. Additionally, premiums are not treated as a benefit in kind, meaning employees don’t face additional tax liabilities.

This tax efficiency makes relevant life insurance an attractive option for both employers and employees, enhancing its appeal as a competitive employee benefit.

Moreover, relevant life can be tailored to suit the specific needs of the business and its employees. This flexibility ensures that the cover provided aligns with the financial requirements of each beneficiary.

What is a Relevant Life Insurance Policy?

Relevant life cover is designed to pay out a lump sum to the employee’s beneficiaries if the employee dies or is diagnosed with a terminal illness with only 12 months or less to live. The policy is active if the employee is with the company and premiums are paid.

The policy remains active as long as the employee is with the company and the premiums are paid. It is set up for an individual employee and is underwritten, meaning it is tailored specifically to that person, covering or excluding medical conditions based on their health and lifestyle.

While other business insurance policies like group life insurance work similarly, relevant life insurance is intended for individual employees or directors, whereas group life insurance covers larger groups of employees with no underwriting required.

How Does a Relevant Life Insurance Policy Work?

A relevant life insurance policy works by the employer applying for a policy on the life of the individual employee. The employer is responsible for paying the premiums, which are typically eligible for tax relief as a business expense.

Benefits include:

  1. Reduce monthly premiums by 49%, due to tax savings.
  2. Pays out 25 times the agreed salary.
  3. Secure new talent with work ‘perks’.

Setting the policy into Trust.

The policy must be set up with a trust to ensure the payout is distributed according to the employee’s wishes, and often this arrangement helps avoid inheritance tax, making the process even more efficient and beneficial.

The Insurance Surgery has a dedicated team to support you through this process from start to finish.

Cost of relevant life cover.

The terms and premiums of a relevant life policy are influenced by several factors, including the employee’s

  1. Age
  2. Health
  3. Lifestyle
  4. Amount of cover required

Insurers will typically assess these factors to determine the risk level and appropriate premium. For businesses, this means the cost of premiums can vary, but the flexibility allows for adjustments to match budgetary constraints and cover needs.

For example, policies can include options for increasing cover over time, reflecting changes in the employee’s circumstances or inflation.

Applying for relevant life insurance.

The administration of a relevant life policy is straightforward and will be handled by The Insurance Surgery business team. The individual who requires the policy will be contacted to complete the application questions directly – to ensure a swift and efficient process.

Once the policy is in place, the employer will need to make regular premium payments to keep the policy live. In the unfortunate event of a claim, the process is designed to be as smooth as possible, ensuring that beneficiaries receive the financial support they need promptly.

By offering such a policy, companies can demonstrate a commitment to the well-being of their employees, fostering loyalty and job satisfaction. This can be a significant advantage in recruiting and retaining talented staff, which is crucial for business growth and success. In an era where corporate responsibility and employee welfare are increasingly important, relevant life insurance can be a powerful tool.

UK Stats on Relevant Life Insurance.

Since 2021 relevant life insurance has seen an increase in popularity. According to the Swiss Re, Term & Health Watch 2024, industry report, there was a 15% year-on-year increase in the number of policies taken out by SMEs.

This surge is attributed to the growing awareness of the tax efficiencies and cost-effective nature of these policies. Small businesses, especially those with limited resources, are increasingly recognising this type of insurance as a strategic tool to compete with larger companies in attracting and retaining top talent.

Case Study: New Tech start-up.

Company Profile:

  • A small IT consultancy firm based in London with 7 employees
  • Annual turnover: £1.5 million
  • Key employees: 1 director & 2 senior developers

The company decided to take out policies for its 3 key employees and opted for 3 different policies providing a range of different cover each.

  1. Premium: £128.42
  2. Term: 35 years
  3. Sum assured:
    1. Director = £1,000,000,00 life insurance
    2. Senior Developer 1 = £400,000 life and critical illness cover
    3. Senior Develop 2 = £400,000 life and critical illness cover

To discuss relevant life insurance or other business insurance plans, call us on 0800 083 2829. Alternatively, email us at [email protected].