Relevant Life Plan

Relevant Life Plans are a type of life insurance that can provide significant benefits and peace of mind to both individuals and businesses. These plans offer a tax-efficient way for employers to provide life cover for their employees, especially those in small businesses or those who do not qualify for group life schemes.

By offering a death-in-service benefit, Relevant Life Plans can help ensure financial security for an employee’s loved ones in the event of their untimely passing. This coverage can help cover funeral expenses, outstanding debts, and provide ongoing support for dependents. Fill out our quick form to get a Relevant Life Plan quote for free.

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What Are Relevant Life Plans?

Relevant life plans are a type of life insurance policy that is set up and paid for by a business to a financial benefit to the employee’s beneficiaries in the event of the employee’s death. The policy pays out a lump sum to the beneficiaries upon the employee’s death, which can help to provide them with financial security and stability.

These plans are often used as a tax-efficient way for businesses to provide death-in-service benefits to their employees, as the premiums paid by the business may be tax-deductible. 

Relevant life plans are similar to group life insurance, but are ‘non-registered’ and therefore do not fall under pension legislation.

Who Benefits From Relevant Life Plans?

  • Relevant life plans are typically used by small business owners who do not have enough employees to qualify for a group life insurance scheme.
  • However, they can also be used by high-earners trying to avoid their group death-in-service lump sum benefits being tested against their lifetime allowance as part of their pension benefits.
  • Usually employers make relevant life plans as a way to incentivise top talent to work for them. These types of employee benefits can attract top-level talent to businesses.

Are Relevant Life Plans for Sole Traders a Good Idea?

Business insurance can refer to a number of products, including but not limited to:

  • Asset protection
  • Liability insurance
  • Professional indemnity.

Although there are many types of business insurance, none of these terms refers to protection to your business if you were to lose a key person.

Who Is Allowed to Have a Relevant Life Plan?

  • Any sole trader, or any employee or director of a limited company or charity is allowed to have a relevant life plan.
  • As long as they are employed full or part-time, and the policy was set up while the employee is still alive, they will be eligible. 
  • The employee covered by a relevant life plan must be a UK resident, or the employee of a UK-resident business (England, Wales, Scotland and Northern Ireland only).

What Happens if the Employee Leaves Their Employer?

If the employee leaves the employer, there is a chance that the premiums will not continue to be paid. However, the trust will continue. The trustees may need to be changed depending on the circumstances.

Relevant Life Plan lung doctor

What’s the Difference Between a Relevant Life Plan and Death in Service Benefits?

Death-in-service benefits and relevant life plans are similar in that they are both types of life insurance that are designed, in the event of an employee’s death, to provide financial protection for their families. However, there are some key differences between the two.

  • Amount of cover: This tends to be a lot higher for death-in-service benefits. This can be between two to 12 times the annual salary of the employee. However, relevant life plans may provide more flexibility to allow each employer to choose the amount of coverage they want to provide.
  • Tailoring: Relevant life plans can be tailored a lot more than death-in-service benefits, and can also be tailored by businesses who do not have a huge number of employees. They can also be used by sole traders. To set up death-in-service benefits, you often need far more employees. 
  • Tax efficiency: Relevant life plans can be a more tax-efficient option for high-earning employees, as they do not count towards the lifetime allowance due to not being part of pension schemes.
  • Flexibility: Another difference is that relevant life plans are typically more flexible than death-in-service benefits.

What Is the Maximum Amount of Cover Available From Relevant Life Plans?

  • The maximum amount of cover available under a relevant life plan will depend on the insurance provider and the specific policy terms.
  • Some insurance providers may place limits on the amount of coverage that can be purchased under a relevant life plan, while others may allow the policyholder to purchase as much coverage as they need, with some evidence requested for higher payouts. 
  • In general, the amount of coverage that is available under a relevant life plan will be based on the policyholder’s age, health, and the type of policy that is purchased.
  • The level of remuneration could also make an impact, with remuneration including salary, bonuses, benefits, and regular dividends from shares in the employer’s company.
  • It is important to carefully consider the amount of coverage that is needed when purchasing a relevant life plan, as this will help to ensure that the policy provides adequate financial protection for the policyholder’s beneficiaries in the event of the policyholder’s death.
Relevant Life Plan white coat doctor

What Are the Likely Tax Benefits of Relevant Life Plans?

  • Relevant life plans can provide tax benefits for both the business and the employee. Both the employer and the employee will be able to avoid paying National Insurance Contributions on the premiums, and employees will not have to pay income tax on the premiums. 
  • For the business, the premiums paid for a relevant life plan may be tax-deductible, which can help to reduce the overall cost of the policy. In addition, the benefits paid out under the policy are generally tax-free, which can help to maximise the financial benefit to the employee’s beneficiaries. 
  • For the employee, relevant life plans can be a tax-efficient way to provide financial protection for their family, as the premiums paid for the policy are generally not subject to tax.
  • A relevant life plan will not cause the Pensions Lifetime Allowance to change, because its premiums and benefits do not count towards annual or lifetime pension allowances. 
  • It is important to note that the tax benefits of a relevant life plan will depend on the specific circumstances of the policyholder and may be subject to change based on tax laws and regulations.

It is always a good idea to consult with a financial advisor or tax professional to determine the tax implications of a relevant life plan.

Are Relevant Life Plans for Directors a Good Idea?

Relevant life plans can be a good option for directors who are looking for a tax-efficient way to provide financial protection for their family in the event of their death. Not only are they eligible, but directors tend to have the type of high salaries that benefit most from relevant life plan schemes, which have notable tax benefits.

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Are Relevant Life Plans for Small Businesses a Good Idea?

  • Relevant life plans can be a useful tool for small businesses as there is often no minimum number of employees needed to be able to take advantage of these schemes. 
  • Relevant life plans can also help to attract and retain top talent, as they can be a valuable employee benefit when included as part of an employee benefits package.
  • It can also help to build loyalty and improve employee morale.

Our dedicated team will get in touch with you on the same day and provide you with a quotation.

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