06/06/2022

6 mins

Why have so few company directors and contractors heard of the company paid life insurance called Relevant Life Cover?

Despite built-in, HMRC-approved tax efficiencies with savings of up to 50% on personal Life Insurance premiums research from Legal & General has found that 63% of directors had never heard of a relevant life plan! ⁽¹⁾ We’re hoping to change that.

What is Company Paid Relevant Life Insurance?

At its core, a Relevant Life Plan (RLP) is very similar to any other Life Insurance policy.

Just as with personal Life Insurance, it runs for a set period of time. If you pass away during that period, the insurer pays out a lump sum. Your family can then use that cash to help with the mortgage, cover childcare and education costs, maintain their lifestyle or pay for a funeral, for example.

However, the main difference between is who pays for it. While you pay for personal cover out of your own bank account, with Relevant Life Insurance your limited company pays the premiums on your behalf.

In that sense, it’s very similar to the Death in Service Insurance a company might offer its employees.

Save Up to 50% With Company Life Insurance…

The main reason these plans offer directors and contractors such high savings over a personal policy is the tax relief available on premiums.

Firstly, you pay for personal Life Insurance out of cash you have left after paying:

Income tax
Employer National Insurance contributions
Employee National Insurance contributions.

Tax deductible premiums

On the other hand, you pay Relevant Life premiums directly from your limited company before HMRC deducts these payments. Moreover, as your limited company pays for the cover, premiums are typically a tax-deductible business expense against your corporation tax bill.

Relevant life cover is not a P11D benefit

It’s worth noting that Relevant Life Insurance isn’t a P11D / benefit in kind. It therefore has no impact on the amount of personal income tax you pay as a contractor or director. This is opposed to some other benefits, such as company-paid Health Insurance, where you need to pay additional tax on premiums.

Claims are paid tax-free

Another benefit is that in the event of a claim, the insurer pays the benefit into a trust. You must set up the trust before putting the policy live. The trust forms an essential backbone to the policy because it keeps the funds separate from your estate and your business on your death. As such, there’s therefore no inheritance tax due on the payout.

Example Tax Savings

The below table features a director paying £100 per month for Life Insurance. Assuming they’re a higher-rate taxpayer (with a 40% marginal rate of income tax), company life insurance works out 49% cheaper than a personal plan.

You can work out your own potential tax savings with our calculator below 🤓.

	Personal Life Cover	Company Life Insurance
Cost to Individual
Monthly Premium	£100.00	£0.00
Employee NI Contribution	£3.45	£0.00
Income Tax	£68.97	£0.00
Cost to Business
Premium	£0.00	£100.00
Employer NI Contributions	£23.79	£0.00
Gross Cost	£196.21	£100.000
Corporation Tax	-£37.28	-£19.00
Total Cost	£158.93	£81.00
Total Savings	49.03%

Relevant Life Insurance Calculator

Calculate the tax savings you can make by taking out a company paid Relevant Life Insurance policy instead of a personal Life Insurance policy.

IMPORTANT NOTICE 🧐
Tax treatment is dependent on individual circumstances and is subject to change. Ultimately, your local inspectorate of taxes will determine your eligibility for Relevant Life Insurance. We recommend consulting with your accountant before taking out a policy.

How Does HMRC Tax Company Life Insurance?

To retain its tax-efficient status and stay on the right side of HMRC, there are a number of rules company Life plans must adhere to. For example:

The policy must only pay out on death and not cover any disability or critical illness benefit.
HMRC prohibits premium payment protection.
It is usually only possible to cover up to 25 times your total remuneration (this can include your salary, dividends and P11D benefits).
The plan can only run to a maximum age of 75 (because it must align with the maximum age for a Group Life Assurance scheme).
A payout can only be in the form of a lump sum, not an income.
The plan must be payable to an individual and not to a company. You must use an appropriate trust to meet this obligation.
There must be no surrender value for the policy at any time.
The policy must not be set up primarily for the purpose of tax avoidance.

If you fail to meet any of these criteria, you risk losing the advantageous tax status of your policy.

There can be a lot of rules to get your head around with these plans, so that’s why we recommend speaking with an expert. For help and assistance, give us a call on 02084327333 or email help@drewberry.co.uk.

Compare Company Life Insurance Quotes & Get Expert Advice

With almost every Life Insurance provider also offering Relevant Life Cover, there’s a lot of insurers to choose from. It can be hard to know where to turn.

Fortunately, we’re an independent insurance adviser and therefore have access to the entire UK market. We’ll compare quotes from every single UK provider to find you the most competitive premiums. We’ll even help you arrange the crucial trust and ensure the policy remains fully tax compliant.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We know that our clients give so much to their businesses. They therefore deserve first class service when it comes protecting that business and their interest in it. Here are just a few reasons why it makes sense to talk to us:

There is no fee for our service
We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
You’ll speak to a dedicated expert from start to finish
We are very proud of the 3886 and growing independent client reviews rating us at 4.92 / 5
Claims support when you need it most.
We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐

If you are a company director who needs help in this area please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.