Company Life Insurance Policies: Why They’re Better Than Personal Policies

Company Life Insurance Policies: Why They’re Better Than Personal Policies

Life insurance is always a good investment. But why shell out for a personal policy when there are viable options to do so through your company? This can be especially useful for smaller organisations that do not qualify for group policies.

Purchasing a life insurance policy through your company and claiming it as a business expense not only saves you money on your personal outgoings, but it can increase your tax savings, as well as being a notable job perk for employers looking to take on new staff.

But here’s the catch: not every life insurance policy you take out via your organisation can be claimed – it needs to be relevant life insurance.

We look into how relevant life insurance policies work and why you should consider one for your organisation.

Relevant Life Insurance Explained

Relevant life insurance isn’t new. On the contrary, it’s been around since 2008 and is considered a highly tax-efficient product that enables companies to provide their staff with life insurance policies.

How it works is it covers an employee for a set number of years, and if they pass away during that term, the payout is then awarded to the beneficiaries via a discretionary trust.

Because the policy is paid for by the company, it’s considered a business expense and, therefore, is tax deductible.

Relevant Life Insurance Criteria

All recipients of this benefit must fall into the following criteria:

• Aged between 17 – 74
• The policy must be terminated once a recipient reaches the age of 75
• The beneficiaries must accept a payout in a lump sum, and the recipient of the policy must accept that the funds will remain level or possibly increase (due to inflation) during its term
• Is subject to one person per policy and of who works for the company (in other words, spouses cannot be added to it)
• Can only be accessed, and only holds value, in the event of a death/successful claim
• Not applicable to add Critical Illness benefits

Other key info:

• This type of insurance is available for the employer/owner, as well as the employees, meaning you, as a company owner, do not need to take out a separate policy.
• This type of insurance is not available for workers who are self-employed.
• Some policy providers may supply a pay-out if a recipient is diagnosed with a terminal illness, but this is subject to each individual provider and will need to be double-checked when the policy is taken out.
• To be completely tax efficient, the policy must be viewed by HMRC as entirely and exclusively for the purpose of the trade.

Benefits of Relevant Life Insurance

As we mentioned above, taking out a relevant life insurance policy is a great way to access life insurance for yourself and your team without spending the big bucks. You can:

• Claim your policy through your business expenses
• Save significant amounts because it is tax deductible (this is particularly applicable to workers who are in a higher tax bracket)
• List it as a company perk when hiring staff, making your company a more desirable place to work
• It isn’t considered by HMRC as a benefit-in-kind, meaning it’s not subject to income tax or national insurance
• Beneficiaries will not be subject to income tax or inheritance tax, if awarded a payout
• Payouts do not count towards your or your employees’ lifetime pension allowance, which, again, reiterates that beneficiaries will not be expected to pay tax if awarded a payout

Relevant Life Insurance: Everything You Need to Know

Your company can save on the following taxes when investing in relevant life insurance:

• Income tax
• Corporation tax
• National insurance
• Inheritance tax
• Pension lifetime allowance charge

The following company types qualify for relevant life insurance:

• LTD companies
• Any companies that has employer-employee structures
• Partnerships
• Registered charities

The types of workers who qualify for relevant life insurance are outlined below:

Applying for Relevant Life Insurance

Applying for and receiving relevant life insurance isn’t a one-size-fits-all affair, as there will likely be considerations that need to be verified via your local tax office.

It can be extremely beneficial to liaise with a financial expert, who can help you make an informed decision about the right provider for your team.

Disclaimer: The information presented in this blog post is accurate to the best of our knowledge and based on the latest available information as of the date of posting, which is 11th May 2023. However, please note that information, laws, regulations, and circumstances can change over time. Therefore, we cannot guarantee the accuracy, completeness, or currency of the information provided. It is always recommended to verify any information independently and consult with relevant professionals or experts for specific advice or updates. The authors and publishers of this blog post shall not be held liable for any errors, omissions, or outdated information, or for any actions taken based on the information provided in this blog post. Readers are encouraged to use their discretion and exercise due diligence in evaluating the accuracy and reliability of the information before making any decisions or taking any actions based on it.