Relevant Life Cover

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Relevant life cover is a relatively new kind of life insurance that has only been around since 2006.

Moreover, because not a lot of people know about it, it is not a product that sells extensively. Nevertheless, it might be just what you are looking for to cover a death-in-service contingency.

Relevant life cover is a type of life insurance intended to provide a lump sum payout in the event of death-in-service. What is 'death-in-service'? Legally, it is a situation in which an individual dies or is diagnosed with a terminal illness while still employed. Most employers who offer workers death-in-service cover do so by way of standard group insurance policies covering everyone on the payroll.

Higher wage earners and company directors may choose relevant life to provide the same benefits while also reducing their tax liabilities. Relevant life is not right for everyone, but it might be right for you. We invite you to call and speak to one of our representatives to learn more about this unique kind of life insurance.

Who Purchases Relevant Life

The most common buyers of relevant life insurance are company directors who would otherwise get a death-in-service benefit through a group life insurance plan. In order to be eligible, the individual covered by the insurance must be an employee of a company involved in the government's PAYE scheme. Relevant life is not available to:

  • sole proprietors
  • equity partners (in a partnership)
  • equity members (in a limited liability partnership)

It is important to note that this type of insurance is considered a single life product. In other words, a company takes out a single policy on a single employee only. It cannot be applied in a group insurance situation. The company purchasing the cover makes regular monthly contributions, just as they would with a group insurance policy, expecting a payout to be made in the event of the employee's death or terminal illness diagnosis.

Relevant life cover is not necessarily a complicated insurance product to purchase. However, you are advised to seek financial advice or speak with your company's human resources department prior to investigating a purchase. There are some very definite restrictions and qualifications that must be adhered to in order to take advantage of the tax advantages of relevant life.

If you are eligible to receive cover, relevant life offers you a very good way to enjoy death-in-service benefits at a lower cost than the traditional group policy. Both you and your employer should look into it!

“No one can confidently say that he will still be living tomorrow.” – Greek playwright Euripides

None of us ultimately knows what day death will arrive at the doorstep. In that sense, every death is an untimely one. However, there certainly are cases when people are struck down in the prime of their lives due to accidents or terminal illnesses. These types of situations are known as “death in service” when the victim is still working at the time of his/her passing. Death in service also applies to the diagnosis of a terminal illness.

Life insurance companies typically offer death-in-service benefits that can be added to a standard life insurance policy. They also offer standalone policies to protect individuals (relevant life cover) or groups (group insurance policies). A death-in-service benefit pays a lump sum immediately upon a covered individual's death or diagnosis of a terminal illness.

Death-in-Service Benefits

The primary advantage of a death-in-service benefit is that it provides a tax-free lump sum in the event a claim is made. Employers may prefer a group death-in-service plan to standard life insurance because it is more affordable on a large scale. Individuals who purchase their own life insurance benefits will not normally purchase death-in-service.

Here are some of the benefits of a death-in-service plan:

  • Mode of Death – When a policy pays out on a death rather than a terminal illness, the mode of death does not usually matter. In fact, the covered individual does not have to die because of a work-related incident.
  • Lump Sum Payment – A death-in-service benefit pays a tax-free lump sum to the individual beneficiaries apart from any other benefits they might receive. The tax-free portion is important, given the fact that the estates of individuals of high net worth may be subject to death taxes.
  • Cost-Effectiveness – Most death-in-service benefits are purchased directly by employers, meaning there is no upfront cost to workers. Some employers may tie the benefits to pension plans, so that is something to know when you first enrol in a pension scheme.

Please understand that a death-in-service benefit is not a substitute for your own life insurance. Such benefits may, or may not, pay out enough money to meet your final expenses upon your death. Consider death in service the same way your employer considers it: as a supplemental benefit that could make the financial situation of your survivors a little better when you die.

Everyone loves to save money – individuals and companies alike.

When a company wants to provide a life insurance benefit to its workers, the most common type of policy is a standard life cover that includes a death-in-service benefit. Yet this type of insurance is not always a good option for company directors, executives, and higher wage earners. A more tax efficient relevant life policy may be better financially, for both employer and employee alike.

As we have already explained, relevant life is a type of life insurance that pays a tax-free lump sum in the event of death in service. Let us take a look at the tax advantages in order to help you understand why it is a better cover for some workers.

Tax Benefits

Understanding the tax efficiency of relevant life starts by knowing how tax law applies to a non-relevant, or standard, life insurance policy. When a company purchases standard life insurance for a group of employees, the following taxes apply:

  • Employee Tax – The employee tax is the money the worker pays as a result of being given a benefit in lieu of additional cash income. The tax is divided into National Insurance contributions and income tax.
  • Employer Tax – Employers also pay tax on life insurance benefits just as though they were salary. They include National Insurance contributions and, in some cases, corporate taxes.

Relevant life is aimed primarily at higher wage earners whose marginal tax rate puts them at 40%. The nice thing about this type of cover is that it is not subject to either employee or employer taxes. Under ideal conditions, a relevant life cover offering a significant lump sum payment could cost as much as 50% less than standard life insurance, when you consider the tax savings.

Let us compare to similar policies with annual premiums of £1,000 each. When you add the taxes to a standard life policy, the premiums could easily rise to as much as £1,600. By comparison, a tax-free relevant life policy would remain at £1,000 if no corporate tax deductions were applicable. If deductions are applicable, annual premiums could fall by a few hundred pounds.

You can see why relevant life cover may be a better deal for both employers and employees. The tax efficiency of relevant life is such that you should look into it for yourself and your employer. Rosey Futures can help by answering your questions.

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