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How Does Relevant Life Insurance Work?

by Nemo
Life Insurance

People’s needs for life insurance coverage might be overestimated or underestimated. You will need enough insurance to pay off debts and meet your family’s continuing expenses, but getting too much protection might result in you spending too much on your policy.

Directors who make a lot of money and workers who have already used up their pension lifetime allowance may find life insurance useful because a standard group life plan would add to their retirement savings.

What is meant by “relevant life cover”?

The name of the insurance policy that small companies most usually use to offer death benefits to company directors and workers is “relevant life cover.” For those with wealthy incomes, it’s also a tax-effective option to get life insurance.

Is a relevant life insurance policy a benefit in kind?

No, although being purchased for the individual’s benefit, HMRC does not see relevant life insurance as a P11 benefit in kind. This means that no additional income tax or national insurance is due or a concern.

How does relevant life insurance Work?

Like regular life insurance, relevant life insurance looks at the applicant’s age, health, and way of life, as well as the amount of coverage they need. Like with a regular insurance policy, the amount of coverage sought will likely be based on things like your mortgage, expenses, and salary, but ultimately, you want to make sure that your loved ones are taken care of in the event of your passing.

Once the amount of coverage you need and your other circumstances have been looked at, a premium will be set, and the business, not the person, will pay for the policy. Beneficiaries, who are usually the insured person’s family members, will get a tax-free payment if they die while the policy is still in effect and the insured person is still working for the company.

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As a perk, business owners, directors, and staff can all get the right kind of life insurance. Life insurance is a nice perk for people who work, but the tax rules for life insurance are not too strict.


When you buy a relevant life insurance policy, you can choose between level coverage (coverage for a set amount) and inflation-linked coverage (coverage for an amount tied to the price of goods and services at the time of claim). If you tie the payment and premiums to inflation, you can expect the price of the policy to go up as time goes on.


Since the insurance plans are not considered a benefit-in-kind, the insured doesn’t have to pay any more income tax. But the company may be able to write off the policy as a cost, which will lower the company’s tax bill.If the policy is put into a trust, the payout to the beneficiaries is no longer subject to inheritance tax. As you can see, relevant life insurance is a very cost-effective perk.

Death in service insurance

An employer-provided benefit known as a “death in service benefit” provides a lump sum payment that is tax-free if you pass away while working for the firm. It usually gives a dividend that is equal to two to four times the person’s annual salary and is not taxed. A relevant insurance policy may give you more protection than a death in service policy.

The Advantages of Relevant Life Insurance

Advantages for businesses

  • Group life plans can be replaced with life insurance that fits the person’s needs and has a lower tax rate.
  • Group plans are often less expensive for large groups, but businesses with only one worker or none at all are usually not eligible.
  • Relevant life insurance lets directors or business owners insure themselves using their company’s income instead of their own, and they can offer a benefit to their employees if they want to.
  • Also, because it could be seen as an expense, it could help the business pay less in corporation taxes.
  • Lastly, it’s a good way to get and keep employees because it shows that you value their work and care about them and their extended families.

Advantages for Workers

  • A relevant life insurance policy provides life insurance to workers without requiring them to pay premiums or even make contributions through their salaries or income taxes.
  • Regardless of the level of coverage a company offers, it may still be beneficial for people to have their own personal policy to make sure they have enough coverage for their particular needs.
  • Relevant insurance is a good alternative to a group life assurance plan for people with high incomes. This is because group plans contribute to a person’s annual pension lifetime allowance, but relevant life policies do not.
  • Most group policy payments will fall under the threshold, putting their pensions in danger of a steep tax penalty.

In the end, having relevant insurance provides you with the peace of mind that your family will be taken care of through a tax-free payout that can be utilized in conjunction with any other policies you may have put in place.

How much insurance do you need that is relevant?

Employers who provide death in service benefits to their employees often pay three to ten times the employee’s annual income. You’ll need to choose what’s best for your business, workers, and, most crucially, your bottom line. We tell business directors who want to get a policy just for themselves to think about their current obligations and costs, like their mortgage, and try to make sure that the policy covers those costs.

What is the cost of relevant life insurance?

The cost of relevant insurance will vary depending on the degree of protection you choose, the person’s age, health, and lifestyle choices. It’s usually a good idea to compare prices as different suppliers offer varied levels of coverage, as is the case with all insurance products.

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