How Relevant Life Insurance Plan Beneficial For Business and Their Directors
If you’re looking to protect your family with a life insurance policy, relevant life insurance cover is a tax efficient way to do it through your own limited business.
Relevant Life Insurance Plans:
This type of insurance is similar to the ‘death in service’ policy that many older employees get. A relevant life policy (RLP) is a tax-efficient way for employees of private limited companies (such as contractors) to receive a cash payout if they die.
Your limited company will pay for the policy written in trust, and the premiums are deductible as a business expense. It’s especially appealing to small business owners who don’t have the money or need to set up a group life insurance plan.
Who gets the benefit?
An RLP – such as limited corporations – can cover employees of many small enterprises, including directors. However, other types of businesses, such as limited companies, are not eligible. If you are interested and do not understand relevant life plans terms and policy, then go to Mountview Financial Solutions, a well known Relevant life insurance Advisor in London, helps you solve every small query.
Today in this blog post, we have discussed how relevant life plans are beneficial for your company and their directors.
Benefits of Relevant Life Plans:
#1 – Significant tax relief is available.
Unlike standard life insurance plans, which are paid out of after-tax income, relevant life premiums are paid by your limited business and deducted from your corporation’s tax bill. Premiums can typically be claimed as a legal business expense if they are given “wholly and solely for the business,” resulting in tax savings. Generally, you (as an individual) will fund conventional insurance using money that has been paid to Corporation Tax, income tax/dividend tax, and National Insurance Contributions.
#2 – No benefit in kind.
Because insurance policy premiums are not considered a ‘benefit in kind,’ you do not need to declare them on your annual accounts.
#3 – No impact on the lifetime allowance for pensioners.
Such insurance benefits are not deducted from your lifetime pension allowance, which is now £1,073,000 (for the tax year 2020/21).
#4 – No implications for inheritance tax.
In most situations, because the policy is written in trust, no Inheritance Tax is payable on any funds paid out by the insurer.
#5 – Salary and dividends used to work out a cover.
You can work out the maximum amount you can insure your life for by adding the value of your salary and dividend draw-downs. It will most likely be 15 to 30 times your annual salary. The maximum income multiples available decrease with age, which is understandable. So, a 30 years old contractor might get 30 times income coverage, whereas a 60 years old can only get 15 times.
#6 – Your insurance policy should be portable.
If you decide to take out coverage but then transfer to permanent employment, your RLP is usually portable, which means your future employer should make payments.
There are some limitations:
There are a few limits you should be aware of for an RLP to fulfil all regulatory standards.
- Life insurance is required, although critical illness and income protection are not permitted.
- An RLP will cover employees until they reach the age of 75.
- The policy can only be purchased on behalf of a UK resident by a UK-based company.
- If your company quits paying its premiums, there is no surrender value.
- Some business types, such as single traders, cannot purchase an RLP since they do not have an employee to purchase the policy on their behalf.
We hope this blog will help you, and if you need any financial and insurance help or guidance, then Mountview Financial Solutions is here to solve your problem.