How relevant is this?
When life cover is set up for employees as a death in service benefit, they are usually set up under a group scheme. A group scheme is of benefit as there is usually a level of benefits under which no medical underwriting is required, the premiums can be classed an expense of the business and therefore there is no NI or corporation tax. Additionally the member is not subject to a benefit in kind tax charge.
The downside of a group scheme is that often there needs to be a minimum number of lives assured, possibly three or five. But there is a way that smaller companies and directors can also benefits from these types of policies. These are termed relevant life insurance policies.
These policies have been available since pension simplification in 2006, but their take up has not been widely used until recent years.
Perhaps this might be to do with the fact that these policies are not written under pension legislation, unlike their group equivalent. With pension lifetime allowances being cut in recent years, any benefits from these relevant life plans will not be accumulated with other pension death benefits, which could take the member unwittingly over the lifetime allowance and leave their estate subject to a tax charge.
Other benefits to a relevant life plan;
- No benefit in kind charge on the employee
- Potential corporation tax relief for the company (assuming the premiums qualify under the wholly and exclusively rule)
- Potential to include significant illness cover
- Death benefits can be placed under a suitable Trust
Coupled with this many life companies have updated the service they provide. Some policies now include access to a remote GP and a second GP opinion. Most providers offer some form of emotional support service now, and are doing their best to provide counselling. There is a huge range of health and wellbeing support and many of these support services can be used regardless of whether or not you are making a claim.
Finally, the insurance industry have in years gone by suffered bad press for payouts on claims, however, figures released by the Association of British Insurers (ABI) and Group Risk Development (GRiD) show that the insurance industry paid out more than £5.7bn in protection claims in 2019 – a year on year increase of over £470m on 2018 – with the percentage of claims paid rising to a record figure of 98.3 per cent. Good news stories often don’t make the news!
If you or anyone you know has life cover through their business, maybe now is the time to review their options.