Relevant Life Policy: When Should You Invest In One?

Relevant life policy is a single life cover that is opted by employers of small companies who want to establish a death-in-service benefit for their employees. The benefits are paid out in a lump sum to the nominee of the employee in the event of his death. 

Earlier, if directors wanted to sponsor a life insurance policy for the workers, they had to pay the premiums from their post-tax incomes. Even if the money was taken out from the company’s account, the premiums were subject to tax liabilities.

Only the group life schemes could provide certain tax benefits that would aid the business owners in saving substantially while providing the death-in-service benefits. 

However, the registered group life schemes are generally not available for companies with less than 20 employees. 

Relevant life policy, on the other hand, offers similar tax benefits as that of group life schemes to the employers of small businesses. Let us learn about the other benefits of the policy:

Benefits 

  • The premiums paid by the employers are tax-free as they are considered to be part of the trading expenses and not benefits in kind. 
  • The amount of money that is paid out to the family of the insured after his death is not subject to tax limitations. 
  • The cover is particularly suitable for the high-earning employees with considerable pension funds as they are not required to include these benefits within their pension allowances. 
  • If the employee resigns from the present organization, then his new employer can take over the responsibility of paying for the premiums if he wants. However, in this case you should ascertain from the provider whether there is any need for further underwriting or not. 
  • There is no National Insurance liability either for the employer or the employee. 

Legislative Requirements

The relevant life cover can only be secured by those who fulfill the legislative requirements that are given below: 
  • The policy can be secured by a sole trader, limited company, charity, or a limited liability company. 
  • The company must be small in size (not having the required number of employees to be eligible for group life schemes) having directors. 
  • The benefits are payable through a discretionary trust and most of the insurance providers would require the trust to be set up before the insurance cover is issued. The employer himself can act as one of the trustees. The employee’s spouse or the company’s accountant or solicitor can act as additional trustees in certain cases. 

Factors to be kept in view

Both the employer and the employee should keep certain factors in view before obtaining a relevant life policy.

1) Nature of Cover

Generally, a terminal illness or disability cover can’t be added along with the life insurance cover. Additionally, it will be advisable that you do not seek the benefits of this policy if you are looking at a cover that provides protection even after the client completes 75 years of age. Relevant life insurance protects the insured till the time he celebrates his 75th birthday, not after that.

2) No Surrender Value Involved

If the employer stops paying for the cover at any time in the middle of the term, the policy will be canceled but no money will be refunded.

3) Choosing the Relevant Life Providers

It is understandable that you will be consulting at least three to four websites of the relevant life providers before making a choice. But it is also important that you go through all the terms and conditions carefully. Some carriers make it very clear that the employee will not be entitled to any or full payout if he provides inaccurate or fabricated information about himself when the plan is about to be set up. 

There might also be instances where you will come across points highlighting that the tax benefits will not be applicable in all cases. So, please ensure that you have clarified all your doubts with the insurer before investing.