Accountants’ Guide to Relevant Life Cover

Why is Relevant Life Cover So Tax-Efficient?

Small businesses often don’t have the number of employees needed for a Group Life Insurance scheme, which means they can potentially miss out on some of the tax-efficient benefits of having Life Insurance paid for by the company.

Relevant Life Cover addresses this by allowing smaller businesses to offer Life Insurance for a single employee, with tax benefits similar to that of a Group Life Insurance Scheme.

Naturally that single employee could be the owner of the business, and more than one policy can be taken out to cover more than one employee.

As premiums for Relevant Life Cover are paid through the client’s business, any benefit paid out:

• Will normally be free of income tax, National Insurance contributions and capital gains tax
• Won’t usually count towards the employee’s lifetime pension allowance (because it’s a ‘non-registered’ scheme)
• Won’t usually be included in the employee’s estate for inheritance tax purposes as the benefits are held in trust.

What’s more, the premiums will:

• Usually be treated as an allowable expense for corporation tax purposes
• Not incur National Insurance contributions for either employees or employers
• Not constitute a P11D benefit.

Small Business Owners’ Savings with Relevant Life Insurance

The actual amount of the saving over personal cover will depend on the employee’s / business owner’s marginal rate of income / dividend tax.

Take John, a company director who pays himself a dividend…

John remunerates himself via a basic salary up to the National Insurance threshold and pays the remainder in dividends. John plans to take out life cover with a monthly premium of £100.

Factoring in both corporation tax (at 19%) and dividend tax (at the higher marginal rate of 32.5%), if John were paying for the cover from his personal income (i.e. dividends) the business would need to generate a profit before tax of £182.90 to fund his premium.

If the business pays for a Relevant Life policy it means there are no associated costs to personal income. This means the effective cost for £100 per month worth of cover once Corporation Tax relief has been applied would be £81.00 per month.

Sally, another company director and higher-rate taxpayer

Sally was looking to pay for Life Insurance out of PAYE earnings. Sally pays a 40% marginal rate of income tax and pays 2% in National Insurance contributions. She’s looking to buy £100 of life cover out of her own pocket.

Factoring in income tax and both employee and employer National Insurance contributions, if Sally were to pay for cover from her personal income the gross cost to the business to fund the premium would be £196.21 per month.

However, with corporation tax relief this falls to £158.93 per month.

As the business pays for the Relevant Life policy it means there are no associated costs to personal income, which means the effective cost for £100 per month worth of cover once Corporation Tax relief has been applied would be £81.00 per month.

Despite the significant savings Relevant Life cover can provide for company directors, research from Legal & General has found that 63% of directors had never heard of this type of cover.

To try and address this, Drewberry has developed and recently launched a Relevant Life Insurance Calculator as per below which demonstrates the potential savings for clients covering both traditional employees and Company Directors receiving dividends.

Samantha Haffenden-Angear
Business Protection Expert at Drewberry

The Best Way to Compare Relevant Life Cover

Drewberry Launches Online Relevant Life Quote Engine

Drewberry helps hundreds of small businesses form across the UK every year arrange protection plans such as Relevant Life Cover, Key Person Insurance and Shareholder Protection Insurance. We also provide advice on pensions and investments.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3919 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

We aim to provide a five-star service and 99% of clients would recommend us.

Partner with Drewberry

We thought the traditional way of introducing a client was a little antiquated and lacked transparency, send your partner an email and hope for the best! We like to do things properly and we wanted to make this experience better.

So we built our partnership portal, you can log in to your portal and have complete information on the clients you have introduced and know they are being dealt with in a professional manner. You can click here to demo our partnership portal →

We currently work in partnership with a number of professional businesses including accountancy firms who engage with their clients regarding business protection insurance.

If you would like to discuss in more detail how we can help your small business clients, please contact me on 07714980112 or email tomconner@drewberryinsurance.co.uk.

Tom Conner
Director at Drewberry