If you worked for a big organisation chances are that amongst your benefits would be a death in service insurance linked to your pension scheme. As an entrepreneur you probably don’t have that luxury. However there is a way that you can insure your life through your business without falling foul of the benefit in kind rules, and whilst most death in service benefits to out at four or five times your salary a relevant life policy can in certain cases offer cover of up to twenty five times salary.
Sounds great, but who is it aimed at and how does it work?
The plan is aimed at three groups, Company Directors, High Earners and smaller companies who don’t warrant a group life insurance cover, but want to protect key staff members.
The policy must be written on a single life basis and the only benefits which can be provided under the relevant life policy are terminal illness cover during the employee’s employment and Lump sum death benefits. In other words, the policy can’t be used to provide other benefits such as critical illness benefits, income protection or disability cover.
Cover can be taken on a fixed term basis of up to 50 years in some cases. However, the policy can’t continue beyond the life assured’s 75th birthday. The employer pays the premiums to maintain the policy. If the employee leaves the employment of the original employer, there are two options:-
(a) The employee could choose to let the policy lapse or
(b) The life policy could be maintained by the employee personally. However, under the terms of the policy the terminal illness cover would terminate.
The premiums paid won’t form part of the employee’s annual allowance. The annual allowance is the amount that can be contributed by, or on behalf of, an individual to any registered pension scheme with the benefit of tax relief. So the employee is still able to make full use of their annual allowance to make contributions to a registered pension scheme. Premiums paid by employers are not normally assessable on the employee as a benefit in kind so they’re not subject to income tax. Premiums paid by employers are not normally assessable for employer or employee National Insurance contributions.
A relevant life policy could be worth serious consideration if you are looking to cover yourself or your key staff, however you should always seek professional financial advice on your particular circumstances from an independent financial advisor. If you feel we could help please call us on 01778 342291