Relevant Life Policies Explained

Posted on October 27th, 2012 in All Posts, Business Protection, Protection.
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My Complete Guide to Relevant Life Policies
A few years ago the recently new Relevant Life Policy was launched. This offered a tax efficient way for company directors to pay for their own personal life insurance.

Even though the policy has now been available for a while and other providers have followed Bright Greys lead many accountants and financial advisers are still not fully aware of the benefits that this policy can offer.

For this reason this page breaks down everything you will need to know about the Relevant Life Policy. You can read the whole page or jump top specific areas using the menu to the right.

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Introduction to Relevant Life Policies
Who Could Benefit
Company Directors that currently pay for life insurance out of pre-taxed money could get their company to pay and therefore make a significant saving. Company Directors that currently let the company pay for life insurance and therefore get a P11D benefit could also switch to a relevant life policy to avoid the P11D benefit in kind charge.
Small businesses that want to set up a death in service scheme but do not have enough employees to qualify for a group life scheme can also benefit. The company can choose cover for all employees directors or a small selection of valued staff. New staff members can be added as and when they join the company.
Where employees have substantial pension funds and they don’t want the death in service benefits to form part of their pensions lifetime allowance. The premiums paid for the relevant life policy won’t impact the employee’s annual allowance either.
Where the employer wants to provide death in service benefits, which exceed the amounts provided by the main company scheme.
Relevant Life Policy Definition
A single life death in service benefit policy. The policy has no minimum number of employees and can cover as few as one.
What Are The Benefits
Company Directors can save 49% by paying for their life insurance through a relevant life policy, compared to paying for the life insurance from pre-taxed income or through the company with a P11D.

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Providers of Relevant Life Plans
Relevant Life Provider Name Provider Logo
Bright Grey – These were the first provider of relevant life policies and educated financial advisers about the product at various training events and workshops. Although the name is new Bright Grey are owned by Royal London one of the UK’s oldest mutuals.
Scottish Provident – These were the next provider to offer relevant life policies. This was possibly because both Bright Grey and Scottish Provident are owned by Royal London and in many areas these share the same development staff.
Zurich – After the clear success that Bright Grey were having several other better known brands wanted a piece of the relevant life market. This lead to Zurich offering a relevant life plan product.
Pru Protect – Pru Protect owned by Prudential Launched there Relevant Life Pland shortly after Zurich. This was part of a bigger launch of various other business protection policies.
Legal and General – Once Legal and General joined the other providers offering different multiples of remuneration based on the age of the applicant this shook up the other providers who soon followed offering various other remuneration options.
AEGON – Again another major provider joined in 2012. I believe that this provider and the research that each of the providers have done before carrying out a very expensive relevant life product launch proves that Relevant Life Policies are here for the long term.
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A Comparison of Relevant Life Providers
Entity Legal & General Bright Grey Pru Protect Scot Prov Zurich AEGON
Max Start Age 73 73 70 70 73 73
Must End Before 75 75 75 75 75 54
Min Term 1 1 5 5 1 1
Max Term 40 40 50 40 40 50
Age 17- 29 25X Remune 20X Remune 15X Remune 20X Remune 20X Remune 25X Remune
Age 30 – 39 20X Remune 20X Remune 15X Remune 20X Remune 20X Remune See Below
Age 40 – 59 15X Remune 15X Remune 15X Remune 15X Remune 15X Remune See Below
Age 60 – 73 10X Remune 15X Remune 15X Remune 15X Remune 10X Remune See Below
Indexation Yes Yes Yes Yes Yes Yes
Continuation Yes Yes Yes Yes Yes Yes
Extra Details for AEGON
Please note the remuneration multiples for AEGON are age 30 – 45 20 Times, age 46 -55 15 Times and Ages 56 above 10 times.
Important
The information for the table above was taken from provider literature on the 28th October 2012. NeedingAdvice.co.uk does not accept any responsibility to errors or changes to this information. Before making a decision about relevant life policies I suggest you speak with me Damian on 07912 076990 so I can recommend the right provider for you.
Ring Me Damian on 07912 076990 or Click Here to Email
Example Relevant Life Cases
Example 1 Husband and Wife Limited Company
Over the last few years I have advised clients on a lot of relevant life policies. I would say the majority of these are for husband and wife company directors of small limited companies. In the majority of cases the husband and wife already have life insurance paid for either from pre-taxed income from their personal bank account, or in other cases the limited company pays and the directors get a P11D benefit in kind for the premiums.
These directors tend to replace the existing policies with a more suitable term and larger sum assured. As the business pays for the policy with no P11D benefit in kind charge the actual saving to them is typically between 36% and 50% the actual saving depends on their tax band and whether they take mostly dividends or salary as their remuneration.
Example 2 Small Employee Death in Service Scheme
Many small businesses want to start a death in service scheme for either for all their employees or in the majority of cases for a handful of highly valued employees. Offering a death in service package is a good employee benefit and can help retain staff as well as attract good quality employees to join your organisation.
In cases like this each employees life needs to be fully underwritten. Therefore I need to communicate directly with the employee for most of the application process. I fill in the medical questionnaire and carry out a short fact find for the employee. I also do a short business fact find for the company. Paperwork is posted to the employee and some to the company. As there is no minimum number of employees and the premiums are deductible as a business expense I find that employers are keen to start this type of policy. When a new member of staff join the company their email is given to me and I get the policy set up independently with only minor participation from the company ie. just a couple of signatures.
Example 2 IT Contractor with Limited Company
Many IT contractors move from working from a permanent employed position to working through their own limited company. Previously with their employed position most would get a death in service benefit as part of their package typically 3 or 4 times their remuneration. Once they leave their position they lose this important benefit.
I therefore get a lot of enquiries from new contractors of various types including IT, Building Trades, Business Consultants etc. These clients typically want their businesses to pay for the death in service benefit that they have lost while setting up as a contractor. Established contractors often do not realise that they can get the company to pay for their life insurance and thus in many cases they are losing out by paying the premiums from the business account and getting a P11D charge or paying from their own income and paying from pre taxed income.
Tax Issues to Consider with Relevant Life Policies
3 Tax Areas to Consider
While dealing with relevant life policies for a number of years I have had accountants ringing me up on numeration occasions asking questions on how the policy works and is it legal etc. Many accountants cannot see how the policy can be used as a business expense and many still want to class the premiums as a P11D benefit. As a financial adviser may responsibility lies in finding and advising on the most suitable product and tailoring the product to suit the particular needs of the client. Dealing with taxation issues is where accounts specialise and I leave that to them. However I have spoken to Scottish Provident and Bright Grey who gave me the text below to help explain the taxation issues surrounding relevant life polices in a language that accountants can understand.
Firstly Benefit in Kind
The issue of the company paying the premiums and not having them taxed as a benefit in kind on the directors. This is not a matter of discussion with the local inspector as the legislation (s247 FA 04) clearly removes this charge to income. The product works on this basis alone giving approximately a 1/3 saving in tax for a higher rate taxpayer in a 20% CT paying company.
Secondly Corporation Tax Relief
There is the issue of corporation tax relief on the premiums. This is where the “wholly and exclusive” rules come in and we cannot be 100% definitive. It is down to the accountant and eventually the local tax inspector should the accountant not be happy to claim the relief . Our opinion is, that as long as the policy can be shown to be part of the normal remuneration package of the employee it is “wholly and exclusively” for the purpose of trade, but we realise that some inspectors may wish to challenge this on the grounds that it is not necessary to provide such a benefit to secure the services of that employee, especially if they are also owners. But if you pursue that argument you would also disallow relief on salary and pensions! We would say that the benefit should be in line with the work done in the business, so a wife who does not actually contribute any significant amount to the business has an RLP then relief could be a problem on her – just as large pension contributions are related to the input / remuneration of the employee. However she can still have the policy and will still benefit from it not being a BIK.
The problem is, because this is a relatively new concept there is little or no guidance in the HMRC manuals so they have to be viewed under the same guidelines as registered schemes and pension payments. The normal guidance for key person cover, HMRC manual BIM 45525, only partially helps us as it deals with policies for the benefit of the company. However it does point us in the right direction under the heading of “benefits paid direct to employees” which refers us to the guidance for pensions under BIM 46000 onwards, in particular for directors, BIM 46035.
Many accountants I speak to are claiming the relief on the basis that (a) it is a legitimate part of the remuneration the same as pension contributions, and (b) it is unlikely HMRC would ever drill down that far to challenge it – after all we are dealing with fairly modest amounts of money in relation to overall turnover. Others will no doubt seek clarification beforehand – we have had little feedback on this yet, probably because it is a little early for returns to be made.
Thirdly The Sum Assured
The last issue is the sum assured. Because this is paid through the RLP trust outside of the company and directly to the beneficiaries there is no tax liability on the company, nor is there any income tax liability on the beneficiaries. No income tax charge arises on the beneficiaries unless the whole arrangement had been set up outside of the legislative requirements, and the insistence on the use of an appropriate trust are designed to ensure this does not happen. The only possible tax that could arise is a periodic charge to IHT under the normal discretionary trust rules. This could only arise if death occurred just prior to a 10 year anniversary and the trustees were unable to distribute the assets from the trust in time. Could happen but unlikely. Max tax charge would be 6%. We are clear about this in the literature.
I would point out that RLPs are not substitutes for registered schemes. Registered schemes will normally be cheaper and have a slightly better tax treatment on claim in that there it does not come under the normal discretionary trust regime described above. RLPs are aimed to fill the gaps that Registered schemes don’t cover – especially on a single life and/or high earner basis.
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Damian Youell

I am a fully qualified financial adviser. I help clients with mortgage advice, protection solutions, retirement planning and investments. I also help directors of limited companies in regard to tax efficient protection and retirement planning.

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