Would you like your Life Insurance paid by your company?
Relevant Life Insurance is effectively a life insurance policy that pays out a tax-free lump sum upon your premature death but the premiums are paid by the company.
The premium payments are usually treated by HM Revenue & Customs as a P11D allowable expense and therefore allows you to reduce your company’s corporation tax as well as your personal tax bill and NI contributions.
The policy is written into a discretionary trust which means the money is paid to the trustees who in turn then pay the money to the named beneficiaries – your family, for example.
Typically there is no inheritance tax on benefit when placed in trust and the premiums and amount insured won’t count towards your lifetime pension allowance.
Typically there is no inheritance tax on benefit when placed in trust and the premiums and amount insured won’t count towards your lifetime pension allowance.
From a company perspective this is a tax-efficient means of providing a Death in Service benefit to you and your employees.
Cover can be up to 25x salary, to a maximum defined by each individual insurer.
As an example, if you are 30, a non-smoker and in good health, then a premium paid by your Employer of around £25 per month would provide you a lump sum amount of £500,000 upon your premature death within 30 years.
Knowing you’ve chosen the right protection solution is only achieved if you have received professional advice. There are many Protection providers and each has their own specialisations and exclusions which means policies taken out online or without independent advice are often not paid out.
Lightblue Online was set up to provide specialist help to people unsure how to go about choosing from the many Protection products available. For example, some providers need supporting financial evidence at lower levels of cover, whist others don’t. So it’s important to make sure that if you’re buying a policy it’s the right one for you.
Our specialists will help you to navigate all the options to find the cover that is right for you and your family at an affordable rate.
If you’re unsure what you need then contact us either by phone on 01702 719625, by email at enquiries@lightblueonline.com or by using the contact me option by clicking here.
-
Types of Relevant Life Insurance
Finding the right one out of many types of insurance could be very tricky. Here are the different types of relevant life insurance suited for different needs and eligibilities:
Level Term Life Insurance
A Level Term life insurance is the simplest of all the life products. An insurer is paid a monthly amount (the premium) to ensure that an ‘agreed amount’ (the benefit) is paid to the next of kin, loved ones or ‘estate’ should the person insured die within the agreed number of years that the insurance is in place, called the Term.
Level Term life insurance is commonly used to pay off an interest only mortgage, as not repaying the capital on an interest only mortgage means the outstanding debt remains the same over the life of the mortgage, and therefore so should the amount of life cover.
Decreasing Term Life Insurance
With Decreasing Term life insurance an ‘agreed amount’ (benefit) is chosen which reduces over time. An insurer is paid a monthly amount (the premium) to ensure that the ‘decreasing amount’ is paid to your next of kin, loved ones or ‘estate’ should the person insured die within the agreed number of years that the insurance is in place, called the Term.
The amount you pay is fixed throughout the life of the insurance (policy), and the premium level is lower than that of Level Term Insurance as a result of the decreasing benefit.
Decreasing life insurance is commonly used to pay off a repayment mortgage, taken out for the same number of years as the mortgage and reducing in line with the outstanding mortgage amount. The benefit should reduce slower than the mortgage debt, ensuring repayment of the mortgage in full. However, there is no guarantee that the level of cover will match the outstanding debt upon a claim.
Increasing Term Life Insurance
With Increasing Term life insurance an ‘agreed amount’ (benefit) is chosen which increases over time. An insurer is paid a monthly amount (the premium) to ensure that the ‘increasing amount’ is paid to your next of kin, loved ones or ‘estate’ should the person insured die within the agreed number of years that the insurance is in place, called the Term.
The ‘agreed amount’ will rise each year by an agreed rate, normally Retail Price Index (RPI) or the Consumer Price Index (CPI). This is called Indexation. As your cover increases so does your premium.
The benefit of selecting indexation is you are protecting the purchasing power of your selected benefit because as time goes by, it’s expected that the cost of living will go up – it’s what’s known as inflation.
-
Relevant Life Insurance Options
As with all things the more options you choose the higher the price. Relevant Life Insurance is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best Life Insurance policy available to you in the market place. Below are some of those options.
Guaranteed
Guaranteed premiums would suggest that what you pay stays the same throughout the policy term unless you increase the required income amount. For some policies this is true, you pay the same amount month after month until the policy ends. For others its guaranteed to increase based on a rate table which means the price you pay in the future for each £1 is guaranteed to go up each year at the rate set out in the guaranteed rate table sent with your policy. You can, therefore, calculate what your premiums will be in the future..
Reviewable
If your premium is not guaranteed then the premiums can change each year due to age or changes to your health. Reviewable policies usually start cheaper than guaranteed policies, but they may end up being more expensive.
Level or Indexed
‘Level’ means that the amount you receive will remain the same throughout the time you have the insurance regardless of whether your income or expenditure increases. Alternatively, the amount you receive can increase each year in line with inflation using either the retail price index or the consumer price index. With some insurers this can be declined on an annual basis.
Waiver of Premium
If Waiver of Premium is selected then when you begin receiving an income from the insurance policy the premiums no longer need to be paid until you return to work or your selected pay-out period is reached.
Renewable Term
If added to a Term Life Insurance policy cover can be extended at the end of the original term for a set period of time, possibly without having to provide additional medical information.
Special Terms
Pre-existing medical conditions may be covered by some insurers but for others they won’t be. There are also exclusions, different again by provider, and in most cases alcohol or drug abuse related deaths will void the policy.
Lifestyle review
If cover is provided on non-standard terms or charged smoker rates, and you change your lifestyle in a way that you think reduces the likelihood of a claim, some polices can be reviewed mid-term, for example giving up smoking.
Continuation Cover
If the insured leaves the company then the policy can convert to a personal plan. This will not be a Relevant Life Cover, and therefore will not have the same tax advantages. Alternatively, if the insured’s new employer is willing the policy can be transferred to the new company without the need for further underwriting.
Cover Increase option / Guaranteed Insurability Option
The ability to change cover often without further medical information if your situation changes. Policies vary but some examples are: marriage, divorce, increased mortgage amount, birth or adoption of a child, salary increase.
Accidental Death Benefit
Accidental Death Benefit will pay out if you die as a result of an accident while your application is being underwritten.
Trust
It is a legal requirement that all Relevant Life policies must be written into a discretionary trust, as any pay-out must go to an individual or a charity. This means that any pay-out will not be added to your estate, and therefore not liable for inheritance tax (IHT).
Putting your relevant Life Insurance into Trust not only means any pay-out is excluded from your estate for IHT purposes, which means that your family will not have to worry about an
Inheritance tax bill, it also means they will get the money much quicker as they can bypass probate, which can take several months.
When a discretionary trust is set up, the employee will name all of the people that may want to benefit from it in the future. They will also name the Trustees who will be the legal owners of the trust fund and responsible for distributing any pay-out or managing the trust fund if, for example, the beneficiaries are children and too young to manage themselves.
Terminal Illness
Pays out early if you are diagnosed with less than 12 months to live.
If you’re unsure what you need then contact us either by phone on 01702 719625, by email at enquiries@lightblueonline.com or by using the contact me option by clicking here.
