Relevant Life Insurance for Directors & Contractors

Relevant Life Insurance for directors 

Are you paying for your life insurance out of your own pocket? If the answer is yes, then you may be paying too much as a contractor or limited company director. Relevant Life Insurance for contractors and directors is tax-efficient life cover. It moves the cost of your life insurance policy from your pocket to your company expenses, and your business will benefit from tax savings that lower the premiums.

In addition to the tax benefits, Relevant Life Insurance for company directors protects your mortgage, your family’s future standard of living, 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 life insurance for an employee/director of a limited company. The policy is paid for by your business and the premiums are HMRC-approved as a tax-deductible business expense – providing you meet strict conditions when setting up the policy. With a Relevant Life policy, premiums are not treated as a benefit in kind and there are no National Insurance implications.

Initial thoughts on contractor life insurance

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 are 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.

In addition to life insurance for contractors, there are four other financial products which are specifically for contractors. Depending on your circumstances these may be worth consideration:

• Contractor insurances in general.
• Contractor Mortgage.
• Critical illness.
• Income protection for company directors.

Now, back to contractor life insurance in the UK. Whether you are a business owner or a contractor, a Relevant Life policy is very tax-efficient. This is when you compare it to personal life insurance.

What is a Relevant Life Insurance policy for Contractors?

Whether you are a business owner or a contractor, a Relevant Life Insurance policy offers incredibly tax-efficient 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. If you own a limited company and already have life insurance in place, you should consider switching to Relevant Life Insurance 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? The headline benefit is tax efficiency. You can immediately save tax by the business paying the life cover premium. It is not treated as a benefit-in-kind as the premium is not included as a P11D benefit. Policy premiums are not subject to National Insurance payments for the employer or employee. Your business can claim Corporation Tax Relief on the premiums and the benefit is payable tax-free. Reassuringly, the benefit does not count towards your lifetime allowance for pension purposes.

How much can you save with a Relevant Life Insurance policy 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 us now see how the cost of your contractor RLP policy shifts when you obtain a Relevant Life cover quote. It will move from your pocket to your company expenses and the taxman.

Generally speaking, this type of director life insurance cover, 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’.

A Relevant Life policy for contractors is not available where there is no employer/employee relationship.

The policy options for limited company contractors are level life insurance or increasing life insurance. What is the difference between these policy options for limited company contractors? 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. An increasing (indexation option) death benefit is an option offered in Relevant Life Insurance policies. It rises in value over years. You should take professional, whole-of-market advice to assess which director life insurance is best suited to your needs.

Relevant Life Insurance policy 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 cover quote, the premiums are paid for by the contractor’s company rather than the employee. Therefore, as a legitimate business expense, this 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 company directors is one of the most tax-efficient ways of providing life insurance for an employee/director of a limited company. Your business pays for the policy, and the premiums are HMRC-approved as a tax-deductible business expense. With Relevant Life cover for directors, premiums are not treated as a P11D benefit. 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% tax bracket could make significant savings when compared to personal life insurance because of the tax efficiency of the policy.

Life insurance for directors, Relevant Life policies are either level life insurance or increasing life insurance. What is the difference between these policy options for directors? 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. An increasing (indexation option) death benefit is an option offered in Relevant Life Insurance policies. It rises in value over years. You should take professional, whole-of-market advice to assess which life insurance for directors is best suited to your needs.

Remember that all directors must meet strict conditions when setting up a Relevant Life Insurance policy.

What does Director Life Insurance cover?

Relevant life insurance for company 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’.

Relevant Life cover for directors is not available where there is no employer/employee relationship.

An example of Relevant Life cover for directors

Let us assume that you own your own company. You pay £100 a month and choose to pay for Contractor Life Insurance out of your own pocket i.e., personally. Please note that this will cost your business more than it should. Notably, 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 director life insurance, you do not pay any NI contributions or income tax on the premiums. However, you will still receive a 19% CT relief. In turn, this makes the net cost only £81 per month. Please note that this is a huge saving of £77.93 a month. This saving equates to £935.16 over the year.

Significant savings

A good financial adviser can advise you of the substantial savings which you can make. Please note that this comes when you attain a 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 directors of small businesses and contractors who look for director life insurance cover. Furthermore, it also gives financial protection to your family when you are no longer around.

The benefits when you take out RLP

While the life cover is personal to you, the policy counts as a genuine business expense. Therefore, when this is paid by the business it is tax-deductible. Now, let us learn more about how a Relevant Life Policy’s benefits can benefit you:

• You will immediately save tax. This comes when the business pays the contractor life insurance cover premiums.
• HMRC will not treat the payments as a benefit in kind. Therefore, you will not need to report the premium as a P11D benefit.
• The premiums are not subject to NI payments for the employer or employee.
• Your business can claim CT Tax Relief on the cost of the premiums.
• The benefit is payable tax-free.
• The benefit does not count towards your lifetime allowance for pension purposes.

Advice

Please note that Relevant Life Insurance should be considered when you are a contractor and are looking for a Life Insurance policy. Notably, there are different types of insurance for contractors in the UK, and this policy offers an excellent level of coverage for your dependents. There are also significant savings if you pay for this through your UK limited company.

Therefore, 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. When you get in touch, you can book an appointment with one of their expert Contractor protection advisers. Please complete the form below to begin the process.

Frequently Asked Questions

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