Global Courant
Until recently, if a business owner wanted personal life insurance, he had to pay for it from his own income, from which taxes and national insurance had already been deducted.
However, the legislation has recently changed and this has enabled four life insurance companies to come up with a tax-friendly innovative product called a Relevant Life Policy. A Relevant Life Insurance is in fact a term life insurance policy. However, unlike larger companies that have 10 or more employees and can apply for a collective death risk policy, the policy is suitable for smaller companies with fewer than five employees or directors.
Unlike a group life insurance policy, which is normally limited to two or four times annual salary, the relevant life insurance policy can be as much as 20 times annual salary plus dividends and P11D benefits such as company car expenses, etc. The premiums are paid for by the joint-stock company before taxes are withheld, generating great savings for corporate executives. The main limitation is that the coverage can only be for life and cannot include critical illness or premium waiver coverage. A typical scenario would be:
A small joint stock company with husband and wife as directors: the husband earns a base salary of £20,000 and £30,000 a year in dividends; the woman earns a base salary of £10,000 and £10,000 in dividends. Depending on the specific insurance company and the age of the applicants, the spouse can get a £1 million policy; the woman could get a policy for £400,000. Although the company owns the policy and pays the premiums, the payment is normally tax free as the relevant life insurance policy is set up under a trust. The policyholder can choose the beneficiaries, such as dependents or spouse, etc.
The most relevant life policies are paper-based applications and are only accessible to regulated intermediaries, such as independent financial advisors.
The four providers of Relevant Life Policies are currently: Bright Grey, Zurich, Pru Protect and Scottish Provident. The main conditions to qualify the life insurance as a Relevant Life Insurance are as follows:
The plan must provide for a lump sum in the event of death before the age of 75.
The policy cannot provide other benefits, such as critical illness or disability benefits.
The policy is classified as a term life insurance policy and therefore has no surrender value.
Any benefit paid from the policy must be paid to an individual or a charitable trust and this can be paid through a trust.
The main objective of the policy should not be tax avoidance alone.
This type of coverage will prove to be a very attractive option for some and to some extent offsets the loss of pension and life insurance policies, which were discontinued by the government.
Relevant Life Policy and the Tax Benefits
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