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Introduction -Relevant Life Insurance for Contractors & Directors
Are you paying for your life insurance out of your own pocket as a UK contracting professional? Indeed, if the answer is yes, you may be paying too much. Therefore, as a contractor or limited company director, it is time to look for the best life insurance policy (UK). Basically, Relevant Life Insurance for contractors and directors is tax-efficient life cover. That is to say, Relevant Life cover for directors moves the cost of your life insurance policy from your pocket to your company expenses. In conclusion, your business will benefit from tax savings that lower the premiums.
Initial thoughts -limited company contractor life insurance
What to think about first
Let’s consider what is a relevant life policy for owners of their own UK contracting company. As well as the tax benefits, Relevant Life Insurance for contractors protects your mortgage and your family’s future standard of living. In addition, it protects your income by safeguarding your future earning potential, and your health.
Relevant Life insurance for directors is one of the most tax-efficient ways of providing director life insurance for you as an employee/director of your own contractor limited company. If we consider when is director’s life insurance tax allowable (UK), the director’s life insurance policy is paid for by your business. Basically, the HMRC approve these premiums as a tax-deductible business expense providing you meet strict conditions when setting up the policy. With Relevant Life Insurance for directors, premiums are not treated as a benefit in kind and there are no National Insurance implications.
Further initial considerations
Please note that you can take out a Relevant Life plan policy to protect employees or directors. As a result, this will give the person covered family income benefits. When you extend cover to your staff, this can also include your spouse. Importantly, it is key you’re aware that when you pay for an RLP plan this is on the basis that you or your employees receive a salary from your company.
Other financial products for UK contractors
In addition to the best Relevant Life insurance for contractors, there are four other financial products which are specifically for a limited company contractor. Therefore. depending on your circumstances these may be worth consideration:
- Contractor insurances in general.
Now, back to contractor RLP insurance in the UK. Whether you’re a business owner or a contractor, a Relevant Life policy is very tax-efficient. This is when you compare a Relevant Life insurance for directors’ policy to personal life insurance.
Relevant Life Insurance for contractors & directors -what to consider
What is Relevant Life Insurance for contractors?
Whether you’re a business owner or a contractor, a Relevant Life Insurance policy offers incredibly tax-efficient company director life insurance.
As a contractor, you work for yourself, and can miss out on benefits that traditional employees take for granted. After all, there is no sick pay or death in service benefit. Therefore, if you own a limited company and already have life insurance in place, you should consider switching to Relevant Life cover for directors’ insurance policy as it is tax efficient and could save you money.
So, what is Relevant Life Insurance for Contractors? And why could it be right for you? Certainly, the headline benefit is tax efficiency. Indeed, you can immediately save tax by the business paying the life cover premium. However, it is not treated as a benefit-in-kind as the premium is not included as a P11D benefit. Therefore, the Policy premiums are not subject to National Insurance payments for the employer or employee. As a result, your business can claim Corporation Tax Relief on the premiums and the benefit is payable tax-free.
How much can you save with Relevant Life Insurance for contractors?
When you take out an RLP plan you can make significant savings when you compare this to paying for life insurance personally. Therefore, let’s see later in this article how the cost of your contractor RLP insurance policy shifts when you obtain a Relevant Life cover quote. It will move from your pocket to your company expenses and the taxman.
Further facts on Relevant Life Insurance for directors
A Relevant Life Insurance (RLP) policy provides life cover to the dependants of the policyholder. As part of this, the funds are paid via a discretionary trust.
When you look for a Relevant Life Insurance quote, the premiums are paid for by the contractor’s company rather than the employee. Therefore, as a legitimate business expense, the cost of the life insurance for company directors’ policy will save tax for you as the contractor. In addition, a Relevant Life Insurance policy is also a very popular type of insurance for contractors UK.
What are the key facts about Relevant Life Insurance for directors?
Relevant Life Insurance for directors is one of the most tax-efficient ways of providing life insurance for an employee/director of a limited company. Certainly. your business pays for the policy, and the premiums are HMRC-approved as a tax-deductible business expense. However, with Relevant Life Insurance for directors, premiums are not a P11D benefit. Therefore, neither the employee nor the employer will incur any National Insurance implications. Should the policyholder die, the claim is paid tax-free.
A company director in the 40% or 45% tax bracket could make significant savings, when compared to a personal life insurance because of the tax efficiency of the policy.
Life insurance for directors, as for contractors the Relevant Life policies are either increasing or level life insurance. Therefore, level Relevant Life Insurance policies tend to have lower premiums whereas with increasing Relevant Life Insurance premiums are higher. Indeed. this is because inflation can reduce the level death benefit’s real value. However, with an increasing or indexed death benefit it rises in value over years to offset inflation. To sum up, as with all financial matters we recommend that when considering life insurance for directors you speak to a professional Financial Adviser.
Please remember that all directors must meet strict conditions when setting up a Relevant Life Insurance policy.
Other areas to consider
What does director life insurance cover?
Relevant Life Insurance for directors will provide protection for the following types of individuals:
- Employers looking to provide death-in-service benefits, but with too few employees to set up a group scheme.
- Directors wishing to provide their own individual death-in-service benefits without taking out a scheme on all employees.
- High-earning individuals, such as directors, where death-in-service does not form part of their ‘lifetime allowance’.
The policy options for limited company contractors are level life insurance or increasing life insurance. Therefore, wat is the difference between these policy options for limited company contractors? Basically, Relevant Life Insurance policies with level death benefits will carry lower premiums than those with an increasing death benefit. However, this does not necessarily mean that level death benefits offer superior value since inflation can reduce the level death benefit’s real value. Indeed, an increasing (indexation option) death benefit is an option offered in Relevant Life Insurance policies. Furthermore, it rises in value over years. However, you should take professional, whole-of-market advice to assess which contractor life insurance cover is best suited to your needs.
Relevant Life Insurance for directors is not available where there is no employer/employee relationship.
An example of Relevant Life Insurance for directors
Let’s assume that you own your own company. For example, you pay £100 a month and choose to pay for contractor life insurance out of your own pocket i.e., personally. However, this will cost your business more than it should. However, if you are a 40% taxpayer, you need to consider that you will have already paid tax on the £100 in the form of income tax and employer and employee NI contributions. In fact, after 19% Corporation Tax (CT) relief, the net cost to your business works out at £158.93 per month.
When you have a Relevant Life Insurance policy for your contractor life insurance, you do not pay any NI contributions or income tax on the premiums. However, you will still receive a 19% or 25% CT relief on the cost of your Relevant Life cover for directors’ policy. In turn, this makes the net cost only £81 or £75 per month. As a result, this is a huge saving of £77.93 or £83.93 a month. Therefore, the overall saving when you take out Relevant Life Insurance for contractors, it equates to £935.16 or £1,005.16 over the year.
Significant savings
A good financial adviser can advise you of the substantial savings which you can make. Certainly, this comes when you attain the best Relevant Life Insurance for contractors quote and pay this through your own company.
Not only does a `Relevant Life Insurance for directors’ policy offer significant savings for you. In addition, it also offers unique advantages to UK contractors and directors of small businesses who look for contractor life insurance cover. Furthermore, it also gives financial protection to your family when you are no longer around.
What are the benefits when you take out RLP?
While the life cover is personal to you, the Relevant Life policy cost counts as a genuine business expense. Therefore, when this is paid by the business it is tax-deductible. Now, let’s learn more about how a Relevant Life Policy’s benefits can benefit you:
| 1 | Save tax | When you’re paying for life insurance through limited company, you will immediately save tax. Indeed, this comes when the business pays the contractor RLP insurance cover premiums. |
| 2 | No BiK | HMRC will not treat the payments as a benefit in kind. Therefore, you will not need to report the premium as a P11D benefit. |
| 3 | Not subject to NI | The limited company director life insurance premiums are not subject to NI payments for the employer or employee. |
| 4 | Claim CT relief | Your business can claim CT Tax Relief on the cost of the premiums. |
| 5 | Payable tax-free | The benefit is payable tax-free. |
Advice
Please note that a Relevant Life Insurance for company directors’ policy should be considered when you’re a contractor and are looking for contractor life insurance. Certainly, there are different types of company director life insurance for contractors in the UK, and this policy offers an excellent level of coverage for your dependents. In addition, there are also significant savings if you pay for this through your UK limited company.
Get a quote
If you would like to request a Relevant Life Insurance for directors’ quote on tax-efficient life insurance, please make an enquiry with our trusted partner, Broadbench. Indeed, when you get in touch, you can book an appointment with one of their expert Contractor protection advisers.
Download their Guide to Relevant Life Insurance for further information on Relevant Life Insurance for directors and contractors.
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Frequently Asked Questions
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Director
Consultant at Broadbench
People are often unaware of the opportunities available to them. This is especially true in financial services, where solutions and savings are hidden under layers of technical detail. It is my job to find creative and compelling ways for my clients to solve their financial problems and save money. Throughout my career, I have delighted in uncovering new ideas, finding hidden gems and solving problems my clients didn’t know they had.
