Relevant Life Policy: Tax Efficient Insurance for Company Directors
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If you are considering a Life Insurance policy and are a Company Director, it may be worth considering a Relevant Life Insurance plan. Relevant Life Insurance Plans are pretty much the same as other Life Insurance policies but have very useful tax advantages for the life assured.
A Relevant Life Insurance Plan is designed for Company Directors who are classed as an employee. The Company Director would be the life assured by the policy and would appoint their Company as the owner and trustee of the insurance plan. The Relevant Life Insurance Plan will be written into a discretionary trust from the outset of the policy with the Company Director’s family and dependants named as beneficiaries.
In a sense the Relevant Life Insurance Plan allows Company Directors to buy their own death in service benefits. The Company pays for the policy premiums removing the need for the Company Director to pay for the Relevant Life Insurance Plan from personal funds.
The main reason for doing this is the way the premiums and the sum assured are taxed:
- Company pays premiums on behalf of the employee (Company Director)
- The premiums paid will not form part of pension contribution allowances
- The premiums are not subject to income tax as they are not classed as benefit in kind
As the policy is paid for by the Company and not from the Company Director’s nett income this can result in savings of up to 50% depending on your personal income tax banding.
Despite the Company paying the premiums the sum assured would be payable to the nominated beneficiary on the discretionary trust, such as your immediate family. These policies must be written into trust at the outset, as the whole reason that the tax exemptions work is because the policy will never be of direct benefit to the Company or the employee.
Insurance providers currently offering this policy include Legal & General, Pruprotect* and Bright Grey. The underwriting of the policy is done in the same way as any Life Insurance policy, i.e. requirements vary depending on the sum assured, higher sums assured may require medicals or GP reports.
In terms of the amount you can cover, most companies will usually offer you a certain multiple of salary, in some cases anything up to 10 times your salary is available, but it does vary from company to company.
In the whole if you are a Company Director and looking for Life Insurance then Relevant Life Insurance Plans are certainly an option worth considering. The policy provides your beneficiaries with a peace of mind in regard to finances should you pass, whilst also providing tax advantages on policy premiums for the Company Director.
* Update: This product is now Vitality Life and not PruProtect.
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