Is this plan relevant to you?

Company directors are missing out on a tax-efficient way of getting life insurance cover simply because they don’t know about it.

It is called ‘Relevant Life Cover’ and despite being widely available, figures reveal that its take up is still low.

So what is it? Relevant Life cover was set up to fill a gap in the market to cover the director of the smallest limited companies – those that have less than four employees.

And it is very similar to the Group Life Insurance that is commonly offered to workers by some of the country’s biggest employers.

It is ideal for directors of small business who want to provide their own individual ‘death in service’ benefits, without taking out a scheme for all employees.

It is a tax efficient term assurance plan available to employers to provide an individual death in service benefit to an employee – designed to pay a lump sum for the benefit of an employee’s family or dependants during the length of the policy.  It can also include critical illness.

In order to be eligible the individual must be an employee, UK resident and employed by a UK resident company and drawing income as Relevant Life plans will not cover dividends only.

Sole traders, equity partners, partnerships or equity members of a Limited Liability Partnership are not eligible.

The sum assured is calculated as a multiple of remuneration which can include salary, dividends, bonuses and P11D benefits. It cannot be based on the individual’s personal requirements such as outstanding mortgages or loans.

The premiums are an allowable business expense and are not classed as a P11D benefit. In the event of the life assured’s death, the policy pays tax-free into a discretionary trust.

A higher-rate taxpayer can save 49 per cent by paying for their personal life insurance through a relevant life plan. For a basic-rate tax payer the saving is said to be around 36 per cent.

Alex Wotherspoon is managing director of ARW Wealth Management, a partner practice of St James’s Place Wealth Management. To discuss any aspects of this article give him a call on 07738277026 or 0151 224 8700.