A Relevant Life Plan is an individual death in service life assurance policy that is available to your company employees, including your directors. Your business is required to pay regular premiums which are based on the level of cover required. If the person who is covered, dies or is diagnosed with a terminal illness during the term of the plan, and whilst in employment, the plan pays out a one off, fixed, lump sum.
The plan is designed to meet certain legislative requirements. This means that your premiums, benefits and options should be treated tax efficiently.
In order to be eligible for a Relevant Life Plan, the person to be covered must be an employee of the business. This can include company directors as long as they are salaried. Unfortunately, Relevant Life Plans are not available for sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.
A Relevant Life Plan is a Single Life Policy. This means that each plan covers just one person; there is no option to include joint cover in the same policy.
Relevant Life Plans are very similar to the majority of other types of life cover except they also aim to offer a tax efficient way for an employer to arrange life cover benefits for an employee. Relevant Life Plans are usually viewed as an allowable business expense by HMRC. All premiums and paid benefits qualify for full Income Tax relief, National Insurance relief and Corporation Tax relief. The result is that premiums could be reduced by up to 49% when compared to a typical life policy if you are a higher rate taxpayer, and up to 40% for a basic rate taxpayer.
To summarise, a Relevant Life Plan can prove to be far cheaper than a conventional life policy for you or your employees. In the majority of cases premiums can be treated as an allowable business expense by HMRC so companies qualify for Corporation Tax relief, plus there is no additional Income Tax or NI to pay
A Relevant Life Plan offers some very special advantages to directors and employees of small businesses, the most notable being tax efficiency. Although the cover is personal to you and your employees, the policy may count as a business expense so it is tax deductible and does not count towards annual or lifetime pension allowances. The Life Plan is also a very cost-effective way to offer life cover to your employees if your business is ineligible for a group life scheme.