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Relevant Life cover: A good choice for high earners

Date: 17 February 2022

If you are a company director or higher earner with beneficiaries, it is never too early to start thinking about life insurance. Here’s why Relevant Life could be a cost-effective solution for you.

Relevant Life is a less widely known type of insurance cover that is tax-efficient and usually more cost-effective. It is like traditional life insurance in many ways – costs and cover are still assessed based on the age, health and lifestyle of the policyholder. The main difference is that the policy is taken out and paid for by your employer on your behalf.

For directors

If you are a company director, Relevant Life insurance is attractive because it offers you the chance to obtain life cover via your business, rather than paying for it out of your own pocket, while at the same time offering the cover as a perk to your employees.

The premiums are paid for by the company and are not assessed as a benefit in kind. This means there is no need for those insured to pay any income tax on it and the employer can reduce its corporate tax bill.

For high earners

If you are in a high-income bracket, Relevant Life insurance is appealing because, unlike traditional life cover, it does not count towards your pension lifetime allowance.

Similarly, any pay-outs from a Relevant Life policy do not normally form part of an individual’s estate for inheritance tax purposes. This generally means that your benefactors will receive a tax-free lump sum if you die.

Limitations

There are, however, some drawbacks to Relevant Life policies.

Policy rules are less flexible than those in traditional life cover. For example, once a Relevant Life policy is set up it cannot be changed. And cover is for an agreed duration, which means the policy must end once you reach age 75. 

Lump sums must be paid out via a discretionary trust – which gives trustees the power to decide when beneficiaries will be paid – if a person dies, as regular payments are not possible.

In addition, only death benefits are provided by Relevant Life. Critical illness is not covered, unlike some life insurance policies. And beneficiaries are normally restricted to family members and dependents.

If you are self-employed or an equity partner, you will not qualify for Relevant Life cover.

How we can help you

The number of insurance products available can feel overwhelming, and it can be tricky to know what is best for you and your family in the context of your wider finances.

If you think you might need some extra help to decide if Relevant Life cover is the right option for you, please reach out to us to find out how we can help with you with all life insurance and personal finance needs.

 

This article is based on our understanding of tax legislation as at February 2022.

Tax treatment varies according to individual circumstances and is subject to change.

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