Life is full of surprises, and not all of them are pleasant. In a world where uncertainty is a constant companion, individuals and families are increasingly seeking ways to secure their financial future. One such avenue that has gained prominence is relevant life insurance, a unique policy that not only offers protection but also comes with distinct tax advantages.
Understanding Relevant Life Insurance
Relevant life insurance is a specialised type of life insurance policy designed for small business owners, directors, salaried partners, and employees. This type of policy provides a lump sum payment to the chosen beneficiaries in the unfortunate event of the policyholder’s death. It will also pay out if the employee is diagnosed with a terminal illness, with life expectancy of less than 12 months. This payout can serve as a financial safety net for the family members or dependents left behind, helping them maintain their standard of living, cover outstanding debts, and manage financial obligations.
Tax Advantages of Relevant Life Insurance
One of the most compelling reasons individuals opt for relevant life insurance is the array of tax advantages associated with this policy. Here are some key tax benefits that make relevant life insurance an attractive option: –
- Tax-Efficient Premiums: Premiums paid for relevant life insurance are usually treated as a business expense for the employer. This means that the premiums are typically tax-deductible, reducing the company’s overall taxable profits and Corporation Tax bill. This can be a significant incentive for businesses looking to provide valuable benefits to their employees or directors.
- No National Insurance Contributions: Another notable advantage is that the premiums paid for relevant life insurance policies are usually not subject to National Insurance contributions. This can result in substantial savings for both the employer and the employee, making it a cost-effective way to offer life insurance coverage.
- No Benefit-in-Kind Tax: For employees, relevant life insurance is often not considered a benefit in kind. This means that employees do not need to pay income tax on the premiums, further enhancing the appeal of this insurance option.
Considerations and Eligibility
While the tax advantages of relevant life insurance are appealing, it’s essential to understand that this type of policy has specific eligibility criteria. Generally, it is intended for small businesses, company directors, and high-earning employees. In order for the relevant life insurance policy to benefit from the tax advantages above, it must meet the following HMRC requirements: –
- It must be exclusively ‘for the purpose of trade’.
- I’s sole purpose must not be to avoid tax.
- The policy is entirely and only for protection and can have no surrender value
- The employee(s) is the person covered; this does not cover shareholders who are not employees. Employees can include directors and salaried partners who are on the payroll as mentioned previously.
Relevant life insurance stands as a unique and tax-efficient solution for both businesses and employees seeking life insurance coverage. The combination of tax-deductible premiums and other tax advantages makes it an attractive option for those looking to secure their financial future while minimising their tax liabilities.
Choose the right Life Insurance to help protect your future
As with any financial decision, it’s advisable to seek professional advice before making a commitment to ensure that the chosen policy aligns with your specific situation and goals. Johnston Wood Roach are specialist Chartered Accountants and Tax Advisors in Waterlooville. Contact Johnston Wood Roach today on enquiries@jwraccountants.co.uk or call our friendly and knowledgable team on 02392 269977 to discuss your personal situation in confidence.