Relevant Life Insurance Cover 2020 Guide
As an employer, do you want to look after your employees beyond just providing them with a wage?
Did you know that Relevant Life Insurance can be offered to your employees so they can look after their loved ones if something should happen to them? In this guide, we describe Relevant Life Cover and how it could benefit your company.
The smartest way to provide protection for your business and employees. Get a free quote today.
What is Relevant Life Insurance
Relevant Life Insurance is a group life scheme paid for by a business for the benefit of its employees. The cover is written into trust and pays out a financial lump sum of money, to the trustees of the scheme and for the employees benefit (beneficiaries) should they die when employed while the policy is in place.
Studies undertaken indicate that over two-thirds of businesses have never heard of Relevant Life Coverage, which is a death in service benefit. Paying regular premiums into a product that provides staff with free insurance throughout a fixed term policy can be great for team morale knowing that their employer has genuine care in their well being above and beyond paying a wage.
Is Relevant Life Insurance A Benefit in Kind?
Not included as part of wages, benefits in kind are a benefit offered to staff and company directors. They are also known as a fringe benefits package with benefits such as private medical insurance, or a company car.
Premiums paid into a relevant life policy are not benefits in kind; instead, they are an allowable business expense. It means that an employee does not need to pay National Insurance or income tax on the premiums.
What About Setting up a Trust?
Trusts can be complicated structures, and employers must get proper advice about setting up a trust that is part of relevant life protection.
In essence, for insurance purposes, a trust is a legal arrangement to look after a life plan until the trust contents pass to someone else. A trust includes four parties who are the principal employer, the member (employee), the trustees and the beneficiaries who will receive the contents of the trust structure.
A trust for relevant life protection ensures that:
- Trust assets payout to the right person.
- Trust assets payout quickly.
- Trust assets payout tax efficiently.
It is a discretionary trust that needs setting up as opposed to other types of trust structures. A discretionary trust allows for the addition of discretionary beneficiaries after the trust has been created simply by writing to the trustees.
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How Much Insurance Do I need?
For most companies, the preference is to set up life insurance on a salary multiplier with age and annual earnings the key factors along with a maximum coverage cap.
As a rule of thumb, many insurers break down the amount of cover required into different age brackets as follows:
- 17 to 39 years old: Up to a maximum of 25 X salary
- 40 to 59 years old: Up to a maximum of 20 X salary
- 60 to 69 years old: Up to a maximum of 15 X salary
How Much Does Relevant Life Insurance Cost
The cost of providing death in service benefits for staff will see different factors employed to assess the level of premium, including:
- The length of the policy term
- The amount of coverage
- The age of the staff member
- The underlying health of the employee
- If the employee participates in hazardous pursuits
- If the staff member is a smoker or non-smoker
- Their family and home life
We have taken an example of two staff undertaking the same role as an office-based engineer, both non-smoking, with a family but no underlying health conditions and only differing in age:
For a 25-year old employee looking for £245,000 of protection, the premium is £6.95
For a 45-year old employee also looking for £245,000 of protection the premium is somewhat higher at £28.95
How Can I Set Up Relevant Life Cover?
It is essential to get sound guidance when setting up a group life scheme as there are complexities, including setting up a discretionary trust as part of the policy. You can either speak directly to an insurance provider but by using an independent broker will open-up access to multiple providers helping provide a more competitive quote.
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How Can Insurance Hero Help?
Insurance Hero is an independent broker that specialises in life insurance, including relevant life cover. As an independent broker, we do not tie to any insurance provider. We can provide you with competitive quotes that also align closely with the needs of your business and employees.
You can contact Insurance Hero right now on 0203 129 88 66 where a professional adviser will be only too happy to help.
Regarding HMRC, Are There Tax Benefits with Relevant Life Insurance?
Relevant Life Insurance is tax efficient for both a business and its employees.
For the company
Life insurance premiums can be considered as an allowable expense for a business when it is calculating its tax liability.
The structure of relevant life insurance can often mean that premiums can be up to almost 50% cheaper compared to personal life cover.
For the employee
An employee does not need to pay National Insurance or income tax on premiums as it is as an allowable business expense and not a benefit in kind which we have touched upon earlier in this guide. For a staff member, there is also the welcome news that any payout from life insurance policies does not count as part of the employee’s lifetime pension scheme allowance.
Additional considerations to take into account for the employee regarding HMRC is the plan only being available up to a maximum of 75 years old and any payout not being subject to Inheritance Tax as it writes into a trust.
What About Critical Illness Cover?
Insurers typically offer two types of relevant life protection, a stand-alone life policy and a life policy that includes critical illnesses cover.
Life insurance provides a financial lump sum of money if you should die, whereas a critical disease is not dependent on your death to payout. Following the diagnosis of a qualifying illness, the insured employee needs to survive at least ten days to qualify for the policy to payout.
Like life insurance, critical cover if taken as part of a more comprehensive product, will use a portion of the premium for the significant illness cover.
Qualifying diseases or conditions are agreed at the start of the policy and can include the following:
- Heart attack
- Major organ transplant
- Benign spinal cord tumour
- Aorta graft surgery
- Heart valve replacement or repair
- Liver failure
- Multiple system atrophy
- Paralysis of a limb
- Structural heart surgery
- Severe lung disease
Is Terminal Illness Cover Included?
Terminal illness is typically part of both standard relevant life insurance and a policy with critical cover. Terminal illness pays out if medical professionals do not expect the insured to live longer than twelve months following diagnosis.
Are There Other Policy Options and Benefits?
Relevant life cover does include further cover options as part of the overall policy, including the following:
Relevant life insurance can link to the rate of inflation with the level of cover, either increasing, decreasing or remaining the same throughout the policy.
Inflation-linked relevant life cover sees the level of premium and subsequent sum assured rise in line with the retail price index (RPI), a UK government benchmark.
A decreasing cover sees premiums, and the sum assured fall throughout the policy and is often taken up if the staff member has a mortgage that is being repaid and gradually reducing over time.
In level cover, the level of premiums paid, and the sum assured remains the same for the duration of the policy.
Guaranteed increase in coverage
The employer has a certain amount of flexibility when managing the needs of their employees within a relevant life insurance policy.
It means that some changes take place without the need for additional underwriting.
Changes may include:
- A rise in salary
- An employee undergoes a divorce.
- The employee adopts a child.
- The employee gets married or enters a civil partnership.
- A staff member has increased a mortgage and needs additional coverage as a result.
The best life plans have other benefits that come from being part of a bigger group scheme.
These include the following:
- Full bereavement support from professional advisers should loved ones need assistance following the death of the insured.
- A funeral component where part of any lump sum payout will pay out quickly to ensure a proper funeral can take place if necessary.
- The support of specialist medical consultants to provide further medical opinions if required.
- 24/7 GP access via both telephone and video.
- Counselling sessions with a psychologist.
How Do You Make A Claim?
If your company needs to make a claim following the death of an employee, it is an unfortunate and sensitive time. Insurers will look to make the claims process as simple and straightforward as possible, often employing assessors trained to talk sensitively.
During a claims process, you should expect your insurer to:
- Check that the policy is still in place with premiums up to date at the time of the claim.
- Appoint a central claims assessor who will be the main point of contact throughout the claims process.
As a company, you will want to do the utmost for the well-being of your employees. Your employees may be well paid but by also providing that additional peace of mind that their dependents will be financially secure should something happen to them is a real boost. You can make this happen for your employees through a relevant life insurance policy.
Do not delay, instead put in place a robust policy today.
What are the minimum and maximum age for a policy?
The reply to this will depend on the insurer, but as a rule of thumb, the minimum age to take out a relevant life is 18 years old, and the maximum age for purchasing cover is 73.
What are the absolute minimum and maximum terms for level cover?
Most insurers will provide a minimum level of coverage of one year on policy. However, such a short duration may not include terminal illness protection up to a maximum term of up to 40 years.
What is the minimum amount of cover permitted under a policy?
Most insurers do not have a minimum permitted level of coverage, and instead, any minimums are driven by the lowest level of premium that can we paid.