The provision of group life insurance, or death in service benefits, was in the past limited to larger employers. With the relatively recent introduction of ‘relevant life insurance’, it is now possible for a company to provide life insurance for individual members of staff. Unlike ‘keyman insurance’ which pays the benefit to the company in the event of the death of an insured member of staff, death-in-service life cover is payable tax-free to the family of the member in the event of death.
Whilst the company pays the premiums, which are treated as a trading expense for tax purposes, the provision of this is not classed as a benefit in kind for the employee/director. This means that relevant life insurance is a tax efficient way to provide life cover for company directors and their staff.
We find that the main use for a relevant life policy is to provide protection for a director’s family; many small firms are reliant on the skills of the owner to provide for the family. In the event of his or her suffering an early death, the company may not survive to provide a continuing income for them. Having the tax man help to fund life insurance in this way provides effective cover in a very efficient manner.
Another use for relevant life cover is to provide a ‘large company’ benefit to employees in smaller companies. Unlike a group death-in-service scheme whose benefit is lost on leaving service, with a relevant life policy, most insurers allow the member to continue their policy on a personal basis should they leave employment for whatever reason.
There are restrictions on the maximum level of cover possible but these are fairly generous; for example, most insures will apply a maximum of 20x remuneration for someone aged under 40 and a maximum of 15x remuneration for those aged 40 and over. Remuneration can usually include salary, bonuses, benefits in kind and regular dividends from shares in the employers company.
To give an indication of cost; to provide £1m of life cover to age 65 for a non-smoker aged 40, in a relatively low risk occupation and assuming acceptance at normal rates, insurers are currently quoting premiums of less than £100 per month.
This information has been provided by one of the excellent IFA’s that we work with; if you wish to obtain more information, please speak with your accountant at RiverView Portfolio Ltd and we will introduce you.
This information is provided for general information and you must obtain the advice of a qualified IFA before acting on the information provided here.