Personal Life Insurance Vs Relevant Life Plans
Relevant Life Plans are a lesser-known form of life insurance, but come with some great tax efficient benefits for business owners and should be considered as an alternative to personal life insurance. Both forms of protection deliver the same result – a pay-out in the event of death – but the main difference is who pays for it.
What is Personal Life Insurance?
In a nutshell, life insurance is paid for personally by you and delivers a lump sum payment to your family if you pass away.
What is a Relevant Life Plan?
A relevant life plan (Or relevant life cover, as it is also known) is paid for by a business on an employer – employee basis. This has several impacts on tax savings for both the employer and employee.
What tax efficient benefits come with a Relevant Life Plan?
If someone takes out personal life insurance, the premium is paid for from their net income, after national insurance and tax contributions (both employer and employee). A relevant life plan works differently – HMRC allow premiums to be deducted as a business expense, which reduces the amount of corporation tax a company has to pay.
When you combine these savings, Relevant Life Cover is significantly cheaper than an individual life insurance plan.
Relevant life plans work well for employees for the reasons stated above, but they are also advantageous for company directors too. As a director, if you are currently paying for personal life insurance using your own income, you should consider moving to a relevant life plan.
As an example, based on a basic rate taxpayer and you are currently paying £100 monthly for personal life insurance, you could save over 40% each month by switching to a relevant life plan, and have your company pay for it, rather than you personally. Higher tax brackets come with higher savings too.
By switching to a relevant life plan with the insurance premiums being paid for by your limited company before taxes are applied, you can enjoy significant tax relief.