Offered as part of employee benefit schemes, relevant life plans can provide life and significant illness cover for directors and employees. But what exactly are they, who pays for them and, perhaps more importantly, who benefits from them?
What Are Relevant Life Plans and Who Pays for Them?
Frequently also referred to as relevant life insurance or death in service benefits, a relevant life plan essentially consists of a life insurance policy to which significant illness cover may be added.
Forming part of companies’ employee benefits packages, relevant life policies are taken out and paid for by employers on behalf of their employees, which may or may not include directors.
Due to the nature of the policy, relevant life plans are a tax effective way for an employer to arrange life insurance (death in service) and also significant illness cover (if selected) on the life of an employee (including directors).
Policies must from the start be issued under trust and, the insured individual will have the option to name their preferred beneficiaries. This will decide who will receive the benefits in the event of a significant illness diagnosis (if selected) or death. The insured individual is also able to retain the significant illness benefit.
Policyholders (i.e. employers) can decide:
- The amount of cover provided for each named employee/director
- Whether cover is level (i.e. remaining the same throughout the policy’s duration) or increasing (i.e. rising over time to counteract the effects of inflation in the future)
- Whether significant illness cover is added to the policy
- The term of the plan or at what age the plan will end
Should the employee/director named on a policy develop a specified significant illness (if this cover is added) or pass away while in the providing company’s employment, the policy will pay out the pre-determined lump sum to the named beneficiaries.
Relevant life cover ceases with the termination of a named individual’s employment with the company, unless the continuation benefit is acted on.
The term “death in service” is often mistakenly understood to mean that a policy will only pay out if an employee passes away while actively engaged in work-related activities. This is, however, not the case. Policies will pay out throughout the insured person’s employment with the company, regardless of where they are or what they are doing at the time of their death.
For more detailed information, please feel free to download our “Guide to Relevant Life Plans”.
Who Benefits from Relevant Life Cover?
As the above makes clear, the main beneficiaries of relevant life insurance are employees and/or their families. Employers do, however, also benefit from these policies in that:
- Providing their employees with peace of mind that they/their families are provided for in the event of something unforeseen happening may enable said employees to focus better on their work. This could, of course, increase their productivity and consequently the company’s profitability.
- Offering relevant life policies as part of their benefits package increases their standing as a responsible, caring employer, which in turn could help the company to attract and retain high-calibre employees.
Spectrum FA specialise in helping companies provide life & significant illness cover for their most valued employees at competitive premium rates. Give our team of advisors a call now to learn more and/or arrange for a free review of your/your employees’ circumstances. The number to call is: 01279 315 013.