What is relevant life insurance?

Relevant life insurance is a type of life insurance policy that an employer can take out to provide death-in-service benefits for an employee.

Life insurance is a form of financial protection that provides a financial benefit to beneficiaries on the life assured’s death (often terminal illness benefit is included too). Relevant Life Insurance is a way businesses can give their employees free life insurance, as it is paid for by the business. It can typically cover anywhere up to 40x of the individual’s remuneration though the multiples are driven by age and the older you are the lower the multiple.

Relevant life insurance is a tax-efficient way for employers to give their staff a valuable benefit. It will pay out a lump sum to beneficiaries (via a trust) upon an employee’s death or diagnosis of a terminal illness. It is an extremely efficient way of providing such a benefit both for employees. For example, this is approximately a 40% saving on cost for a higher rate taxpayer to have the premiums paid for by the business when compared to traditional life assurance the paying the premiums personally from net income.

When is relevant life insurance suitable?

This type of life insurance is well-suited to smaller businesses that might be too small to qualify for group schemes.

But, relevant life insurance can also be used in addition to a group scheme as it does not count towards lifetime or annual pension allowances, making it appealing to high-earning employees and especially business owners.

Relevant life cover is usually taken on behalf of employees and can be used by Ltd Companies, partnerships (limited liability partnerships). Typically, it is available to employees aged between 16 to 75, but this can vary between lenders and is always caped at age 75 due to limitations of the legislation it uses.

The benefits of relevant life insurance for businesses and employees

Group life insurance schemes usually work out cheaper for larger businesses with lots of employees and small businesses, with fewer or no employees, won’t qualify. Relevant life cover allows a business owner, to cover themselves through their business, rather than personal income. This is a tax-efficient life insurance method as it can be treated as a business expense.

For businesses, a relevant life policy is a great perk to offer employees and it shows care for staff and their loved ones should the worst ever happen.

For employees, this type of life insurance is desirable as it gives them life insurance without having to pay any premiums for it. For high-earners, relevant life insurance also has some benefits as unlike group insurance schemes, it does not count towards an annual pension lifetime allowance.

Relevant life cover provides peace of mind for employees and it is reassurance that should something happen, their beneficiaries will receive a tax-free payout, alongside any other personal policies they might have.

How relevant life insurance works

This type of life insurance policy works in a very similar way to others. Each individual is assessed for how much cover is required, and factors such as age, lifestyle and health are taken into consideration. This, along with other elements such as their financial commitments (mortgage, bills etc.) generates a premium.

Unlike personal life insurance policies, this premium is not paid by the individual, but the business instead. If the individual passes away or is diagnosed with a terminal illness, the policy pays out a tax-free lump sum to beneficiaries.

Relevant life insurance can either be linked to inflation or a set amount. It is not treated as a benefit in kind to employees who are insured and do not have to pay any tax and the business can treat the payments as a tax-deductible expense.