11th April 2019
Are you currently paying for your Life Insurance out of your own pocket? Switching your Life Insurance to a Relevant Life policy could personally save you tax as well as lower your limited company’s corporation tax bill. Best of all, it’s designed for Contractors!
Relevant Life Insurance is a policy designed by HMRC to afford Contractor’s the same benefits that big businesses enjoy. It’s essentially a Life Insurance policy that is taken out by a limited company Director to provide a ‘death in service’ benefit for an employee. Though it’s paid for by an employer, the policy pays out directly to the employee’s beneficiary in the event of their passing.
There are many similarities between Relevant Life Insurance and ‘regular’ Life Insurance, as both policies will pay out to your family if you were to pass away. The difference is that Relevant Life Insurance is designed as a benefit for Contractors. It’s a tax efficient way to pay for life insurance, as instead of paying it out of your post-tax income, Relevant Life Insurance is paid for through your company as a business expense – saving you money.
Covers the ones you love – Just like regular life insurance, Relevant Life will pay out a tax-free lump sum to your family in the event of your death. This is to substitute the loss of income your family would’ve received.
Reduces tax – As you’re paying for the premiums out of your business and not your pocket, you immediately save tax.
Not a benefit-in-kind – It’s not treated as a benefit-in-kind, which means you don’t have to include it as a P11D benefit or pay tax on it.
Pension pot is untouched – The policy does not count towards your lifetime allowance for pension purposes.
No National Insurance to pay – The premiums are not subject to national insurance payments for the employer or employee.
The savings are huge – Let’s say you’re currently paying £100 per month for Life Insurance out of your own pocket – you’re paying more than you should. If you’re a 40% taxpayer, add income tax, 14% national insurance contributions, after the 19% corporation tax relief, the net cost to your company works out at £158.93 per month for you to pay for the policy personally. Instead, if you pay £100 per month for Relevant Life Insurance and take away national insurance, income tax and corporation tax, you’re left paying £81 per month. That’s a saving of £77.93 a month. Watch the short video below for more information.
There are several other insurance products you can use to protect yourself and ensure financial security if you fall ill, injured or pass away.
Income Protection: If you’re unable to work and earn due to illness or injury, Income Protection pays you a proportion of your regular salary.
Critical Illness Protection: Pays out a lump sum if you are unable to return to work due to a critical illness.
Private Health Care: Helps you get back on your feet faster by providing you services that are unavailable on the NHS.
When you work for yourself, it’s important to make sure that you and your family are financially protected and prepared for whatever happens. Get in touch with one of our specialist advisers here to find out how you can switch your Life Insurance policy to Relevant Life Insurance and save money on your monthly premium.
All content is accurate at the time of publication