Relevant life insurance is a special life insurance that bosses can get for their employees, and it’s a win-win! Great news – it comes with cool tax benefits for both the boss and the employee. This type of insurance is perfect for small businesses, big earners, or directors who want to take care of their team without messing with pension stuff or inheritance taxes.
So, how does it work? If, heaven forbid, something happens to the employee like a serious illness or, you know, the worst, the insurance gives a tax-free chunk of money to their family or whoever they choose. The boss pays the premiums (basically, the insurance bill), and it’s usually tax-deductible as a business expense. Plus, the employee doesn’t have to worry about paying income tax or national insurance on them.
This insurance is written in trust. Why does that matter? Because it keeps the payout safe from inheritance tax and doesn’t get tangled up in the employee’s estate. We’ll also chat about how relevant life insurance stacks up against another thing called death-in-service benefit and spill the beans on how to get this awesome insurance.
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What is relevant life insurance?
Tax-efficient life insurance covers death-in-service benefits set up and paid by the insurance company to the beneficiaries of an employee on death.
Relevant life insurance works tax efficiently to reduce potential pension tax. Unlike most insurance policies, relevant insurance premium payments are pay by the company, not employees, making it a tax-deductible business expense.
Relevant life policyholders get death-in-service and tax benefits simultaneously. It is the best alternative for group life insurance. A Relevant Life Plan does not count towards annual or lifetime pensions; instead, it is a cost-effective way of employee coverage for death.
How does relevant life insurance differ from traditional life insurance?
Relevant Life Insurance and Traditional Life Insurance are both types of life insurance policies, but they serve different purposes and have different benefits.
- Relevant Life Insurance:
- This is a type of life insurance policy that is designed for employers to offer to their employees. It’s a tax-efficient way of providing a death-in-service benefit to an employee.
- The premiums are paid by the employer and are usually tax-deductible as a business expense.
- The policy is written in trust, so any payout is usually free from inheritance tax.
- The payout does not count towards the lifetime allowance for pension savings.
- It’s particularly beneficial for high-earning employees who don’t want their death-in-service benefits to form part of their lifetime pension allowance.
- Traditional Life Insurance:
- This is a personal life insurance policy taken out by an individual.
- The policyholder pays the premiums from their post-tax income.
- The payout may be subject to inheritance tax unless the policy is written in trust.
- It’s not specifically designed to be a tax-efficient product, unlike relevant life insurance.
Benefits of relevant life insurance
Relevant life insurance has some really cool perks for both bosses and workers! Check these out:
1. Tax Breaks: Bosses get to deduct the premiums as a business expense – that means they save some cash! And here’s the best part: employees don’t have to pay income tax or national insurance on those premiums. Plus, when the payout happens, it’s tax-free for the person getting the money.
2. Inheritance Tax Hack: The insurance payout doesn’t mess with the inheritance tax stuff. So, if you’re thinking about passing on your wealth, this can be a real game-changer. The family gets to avoid or at least shrink their inheritance tax bill – win-win!
3. Total Flexibility: Employers can customize the policy to fit the employee’s wishes. How much coverage? How long? Who gets the money? It’s all up to them. And guess what? If the employee switches jobs, the policy can tag along. Even if they leave the company, they can take it with them. Talk about keeping things flexible!