A relevant life policy is a single-life plan which is used by the employers of companies and small business owners for insuring the key people in their organizations. The most attractive feature of relevant life insurance is that they can cover their key people on top of the existing group life insurance schemes if needed. The policy is also ideal for firms which have a considerably small number of employees.
Relevant life policies are devised in such a way that the life cover requirements are aptly taken care of. However, these policies don’t feature any income protection or critical illness cover and remain valid till the 75th birthday of the insured person. The payouts are tax exempt which bring a huge relief for both the employer and the employee. The employees don’t have to bear the burdensome cost of insuring themselves on their individual capacity.
High-earning individuals and company directors are more likely to be eligible for these policies. Therefore, the plans are quite beneficial for them in terms of affordability, taxation, and other features.
Why should you go for a relevant life policy?
The most practical reasons for choosing a relevant life policy are explained below:
- The company can pay the premiums, normally regarded as a deductible expenditure. These expenses are not considered as a benefit in kind.
- As a result, these expenses can be treated as business costs and don’t attract corporation tax which is a significant relief for the employer.
- The employee is not liable to pay any income taxes.
- The employee or the employer is not liable to pay National Insurance.
- The beneficiaries or dependents of the person who passes away will receive the payouts in a tax-exempt manner.
- The benefits and payouts are not included while doing the calculations of the yearly and lifetime pension allowance.
Implication of paying the benefits through trusts/charities
The relevant life providers offer the death benefit via a discretionary trust or charitable association. Trusts guarantee that the claim amount reaches the right hands at the appropriate time in a tax-exempt and effective manner.
The principal advantages of offering benefits via a trust are as follows:
1) Faster claims disbursal
The claims are processed through trust more promptly in comparison to other modes. In other modes of claim payment, a Grant of Representation is necessary prior to making the claim. This procedure takes considerable time. Paying through a trust is a surefire way to avert this.
2) No inheritance tax is imposed
The benefits paid out to the beneficiaries or dependents of a relevant life policy holder are free of any inheritance tax. This brings a huge sigh of relief for the beneficiaries or dependants.
The principal aspects of a trust are the following:
a) The settlor – The individual or organization that establishes the trust. They are people who designate the trustees and determine the beneficiaries.
b) The trustees – People handling the trust funds for the beneficiaries.
c) Beneficiaries – People who will be receiving the payout according to the discretion of the settlors.
Author bio: Sam Payn is an avid blogger. He has particular interest in writing blogs and articles on finance, investment and life insurance.