Relevant Life insurance cover for independent contractors

Many contractor insurance policies are reworkings of generic policies, adapted for the contractor lifestyle. Not so with Relevant Life insurance. This was (and is) insurance cover created specifically for limited company contractors.

To provide life cover ‘relevant’ to contractors, providers must be able to understand professional contracting. Most didn’t. Hence, Relevant Life cover, which exhibits a comprehensive knowledge of how contractors work. Not only from the aspects of cover, but also the way they use limited companies as payment structures.

This guide for independent contractors aims to provide only the most pertinent and actionable advice.

Securing your financial stability and legacy

Life insurance guides frequently invoke “peace of mind” as a reason to take out a policy. Its significance cannot be understated, but there are other key advantages for contractors with Relevant Life, including:

• tax-deductible premiums,
• exemption from P11D status,
• a payout of up to 15 times the contractor’s salary and dividend drawings.

So, yes: the primary concern lies in ensuring the financial security of contractors’ beneficiaries. But, this policy also serves as a critical component of savvy financial planning.

Equivalent to employee death-in-service benefits for contractors

Contemplating our own mortality is inherently challenging. No one wants to think of a time when we’re not here. But the fact is, none of us are going to live forever.

And, when you worked for an employer, you conveniently didn’t have to think too hard about it. You had a death-in-service policy, where you apportioned what percentage of your legacy you’d leave to whom. You signed it when you took on the job, and that was about it.

However, as a contractor, the absence of employer-provided death-in-service benefits necessitates thinking about it. And, really, every independent contractor has a duty to safeguard their dependents.

A Relevant Life policy can do that to the power of 15.

Upon the policyholder’s demise, their beneficiaries are entitled to a payout of up to 15 × the contractor’s salary and dividend drawings. That eclipses the 3- or 4-× salary benefit of traditional employer-provided death-in-service benefits.

Tax-efficient structure for all parties

Another thing about employer-led death-in-service benefits is that employees pay premiums after tax. Unlike PAYE employees, limited company contractors can pay premiums through their companies.

This simple fact reduces the contractor’s corporation tax liabilities. The exemption of life insurance premiums from P11D status further enhances tax efficiency.

In fact, because Relevant Life is created using a trust, payouts are exempt from:

• corporation tax,
• inheritance tax, and
• income tax.

Contractors can now even create these trusts digitally. No more waiting for documents to arrive to sign them. Contractors can now safeguard their dependents’ livelihoods from the comfort of their favourite chair.

Scope and limitations of Relevant Life cover

Relevant Life policies are exclusively life insurance products. They do not provide critical illness cover or income protection. They have no ‘surrender’ monetary value.

The policy’s sole monetary value is contingent upon the policyholder’s death during the policy term. Upon retirement or cessation of limited company operations, the policy simply ends.

Your legacy: a fundamental responsibility

Contractors must consult an experienced protection advisor before taking out a Relevant Life policy. Only an expert in the field can help determine the appropriate level of cover you need from your policy.

Procrastinating over life insurance can have significant repercussions. So, don’t. And why would you hesitate, when Relevant Life offers so many other direct advantages for contractors?

Establishing a robust legacy is a key responsibility that’s easy to overlook after leaving PAYE employment. Relevant Life insurance is a crucial, but simple step in fulfilling this obligation for every limited company contractor.

Talk to an advisor today to safeguard your legacy.