Can you put life insurance through a limited company?
If you're a limited company director, you will be pleased to hear that rather than funding the costs of a life cover policy from your personal or post-tax income, your company can fund a relevant life policy (RLP), which provides death-in-service benefits similar to those provided by larger employers to their employees.
What is a relevant life insurance policy?
A Relevant Life Plan offers a cost-effective way for an employer to arrange Life Cover on the life of an employee, with the benefit payable to the employee's family or financial dependants. This should be tax efficient for employers and employees, as long as it meets certain legislative requirements.
Can you have a joint relevant life plan?
Unlike personal life policies that are joint between two people where the policy pays out on first death and then terminates, a relevant life policy can only include single life cover, but you can have multiple life covers with different terms within the plan as long as they are all for the purpose of providing benefits for dependants. You cannot use the same plan for other key person or ownership protection benefits.
Who can have a relevant life policy?
Who is allowed to have one? Any employee of a business, including directors. The business can be a limited company, a partnership, a charity or a sole trader. However you cannot get cover for sole traders or equity partners themselves where they are taxed under schedule D.
Can a sole trader have a relevant life policy?
A sole trader in their personal capacity as a business owner is not eligible to take out relevant life cover, as a sole trader is not a legal entity and cannot get a policy through the business. However, a sole trader business owner can apply for a policy on behalf of an employee.
Relevant Life Cover (RLC) allows employers to offer a death-in-service benefit to their employees. It’s a tax-efficient life insurance policy, set up by the employer and pays out a tax-free lump sum on the death (or diagnosis of a terminal illness) of the person insured. The proceeds go to the employee's family or financial dependants.
If you're a Director who's paying for your life insurance from your personal income:
you could benefit by having a relevant life insurance plan that's put through the ltd company.
Counts as a tax-deductible business expense (unlike some group schemes)
The premiums are paid monthly
The pay-out is usually free from inheritance tax
Maximum amount of cover available is normally £10 million
Policies must be written into a discretionary trust
Most insurers won't pay a claim if the person covered dies as a result of intentionally taking their own life within the first 12 months of the policy starting
The person covered must be a UK resident and an employee of a UK business
A sole trader in their personal capacity as a business owner is not eligible to take out relevant life cover
Setting up cover
Relevant Life Cover is arranged on an individual and life-of-another basis with the employer as the policy holder, and the employee as the person insured. Many employers choose to set the amount of cover as a multiple of their employee's salary.
I suggest a maximum amount of cover based on the employee's age and gross annual earnings.
There is no correct or wrong amount, you simply take out as much as you think the business can afford.
The company insures the employee/s and polices are written into a discretionary trust.