You are here: Home » Blog » Financial Advice Blog » Relevant Life Cover for Contractors – stick it on expenses!
Relevant Life Cover for Contractors – stick it on expenses!
Posted by John Yerou
on July 25th, 2012 17:49pm in
Last Updated on December 21st, 2018 13:15pm.
It’s an age old conundrum for contractors. Just how do you provide valuable life cover and financial security for your family in a tax efficient manner?
A revolutionary product has brought life cover into the 21st Century for small business owners. It’s called a Relevant Life Plan and could be the answer you’ve been looking for if you work through your own limited company.
What is a Relevant Life Plan?
A Relevant Life Plan (RLP) is a ‘death in service’ life policy for the individual. In its most basic form, it’s a term assurance plan designed to pay a lump sum benefit.
The plan pays out if the person covered dies during their employment. Or, if doctors diagnose terminal illness during that term, the plan also pays the benefit.
Relevant Life is similar to other types of life insurance in that respect. But it differs in that it’s a tax efficient alternative to providing valuable death in service benefits.
Added peace of mind, tax free
The unique way in which Relevant Life Plans work mean you can, in effect, have the taxman help pay for the cover. See, you knew they served some purpose.
While the cover is personal to you, the policy counts as an allowable business expense, making it tax deductible. The added bonus is that it doesn’t count towards annual or lifetime pension allowances.
In most cases Relevant Life premiums and benefits qualify for relief. This includes full Income Tax, National Insurance and Corporation Tax relief.
What can you save?
A Relevant Life Plan could result in savings for limited business owners when compared with a typical life policy. Premiums reduce by up to 49%* if you’re a higher rate taxpayer and up to 40%* for a basic rate taxpayer.
*% compares premiums paid through the business after relief to premiums paid from net pay, after tax.
The one thing about owning a business is that our circumstances rarely stay the same for long. A Relevant Life Plan is flexible enough to change with us.
You can increase the amount of life cover without the need for further underwriting because:
- your contract rate has increased;
- you’re getting married;
- you’re moving to a larger home;
- you/your partner are/is expectant with child.
What are the advantages of a RLP?
Many standard life policies cover only that: death. The irony. But even though RLP is, at its heart, a life cover policy, one particular insurer (Bright Grey) also offer a nurse adviser.
If the individual covered or a member of their family develops a critical illness, the plan will assign a nurse upon diagnosis.
This aspect of the service is available at any time, without the need to make a claim. Also, Relevant Life Plan:
- benefits won’t form part of the contractor’s lifetime pension allowance;
- payments made won’t form part of the contractor’s yearly personal allowance;
- payments aren’t subject to limited company income tax since they’re not assessable as a benefit in kind;
- payments are a tax deductible expense when paid through the limited company;
- sums assured are free of inheritance tax as you create, pay into and out of the plan through a discretionary trust.
With regards to the amount covered/premiums, they can be flexible, too. You can take out the policy as either a level, decreasing or increasing term basis.
Are there any restrictions to this type of cover?
The plan only provides life cover. It includes neither income protection nor critical illness cover.
The legislation surrounding this policy also imposes certain limits. It ensures that the premiums and benefits remain eligible for their respective tax allowances.
Here’s a summary of other main points about Relevant Life cover that small business owners need to know:
- cover only lasts up to the age of 75;
- cover only pays out on death of the named policy holder;
- beneficiaries of the plan are often restricted to family members and dependants.
For more definitive information about our protection, feel free to continue to our Contractor Life Cover resource.
Author: John Yerou
John Yerou is the owner and founder of Freelancer Financials; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.
Freelancer Financials Blogs
Request a Callback
Latest Blog Entries
- The Smart Way for First-Time Buyers to Save on Stamp Duty
- How does a BoE base rate rise affect my mortgage repayments?
- Even with payslips, High Street mortgages elude umbrella contractors
Finding a Financial Advisor who’s professional and knowledgeable is a bonus but one that you trust and feel comfortable with immediately is rarer still. I have recommended John to virtually all the other IT Contractors that I work with and will continue to use their services in the future.
Jakub Baluch.. IT Contractor
John Yerou and his team provided the brokerage service for my last 3 mortgages and I cannot rate them highly enough. No matter how large or small the request they always provide a speedy and professional response. I would never consider using another advisor/broker.
Roz Clifford.. Freelancer
We have been introducing Contractors and Freelancers to Freelancer Financials for several years now. They have established themselves as the preferred choice of financial advisors to all our IT contractors and Freelancers.
Bernie Potton.. SQ Computer Personnel (largest independent IT Recruitment Agency in the UK)
Andrew Saunders and Leanie Freed have provided an impressive service - one month from initial enquiry to completion of house purchase, with a mortgage from an established high street lender on a good interest rate. The service was clear, responsive and professionally managed throughout. Most importantly, Andrew understands the business context for contractors and this directly informs their approach to lenders
Bill Robinson.. Contractor (Management Consultant)