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.