With Relevant Life insurance
If you are paying a life insurance from your personal funds, but also have a limited company, then this information is likely be of high value to you. Directors of limited companies are able to save up to 52% on their life insurance premiums by switching to a Relevant Life insurance policy, where premiums are paid by your company.
What is Relevant Life Insurance?
Relevant Life insurance holds all the fundamental benefits of regular life insurance.
Should the policy holder die within the contract period, a one-off tax-free benefit will be paid to the contract beneficiary, offering financial protection to your family in the event of your death.
With Relevant Life insurance, policies will be either decreasing term or level term.
- Level term – premiums remain the same for the contract period
- Decreasing term – premiums decrease over the contract period
Relevant Life insurance, unlike regular life insurance, can be paid by your limited company and because it classifies as a business expense, a number of tax breaks become available to you.
Relevant Life insurance has many tax benefits
As a business expense, Relevant Life insurance premiums receive full tax relief for corporation tax, by ensuring premiums are paid from your company.
In addition, you don’t need to use taxable income, such as dividends, to cover the premiums personally, so this is an added financial benefit.
National Insurance also does not apply when the policy is within your company. Neither are premiums classed as a P11D benefit-in-kind for the employee, i.e. you as the director.
In terms of tax benefits, Relevant Life insurance really ticks all the boxes.
Relevant life insurance is written in trust. This means that when a claim is made, the beneficiary will receive a prompt payment, that is also outside the scope of Inheritance tax.
Working with a financial adviser is recommended, as products do vary across the market. A financial adviser will know the recognised providers and where to find the best premiums.
How much can you save from switching?
If you are a higher rate taxpayer, switching to a Relevant Life insurance policy could save you up to 52% in tax benefits.
For basic rate tax payers your savings could be up to 36% when comparing a Relevant Life policy to a regular life insurance policy.
If you are a higher rate tax payer, switching to Relevant Life insurance could save you up to £7,800 over a 25 year contract, paying a premium of £50. Is that worth exploring further?
SAMPLE OF SAVINGS
Here is an example of potential savings, based on the following criteria:
- Monthly premium – £50
- Life cover paid from dividends – YES
- Total dividends in year – £50,000
- Tax rate of director – 40% (higher rate)
- Company corporation tax rate – 20%
Relevant Life Insurance: Key Points
- As a business expense, you can claim full corporation tax relief on Relevant Life insurance premiums, at 20%
- As you won’t have to use your personal taxed funds, such as dividends, you will personally save tax at basic, higher or top rate
- The policy is written in trust so benefits paid out to your family are not subject to Inheritance tax
- Insurance premiums are not considered a benefit-in-kind for the director, as an employee
- Premiums are not subject to National Insurance whilst being paid by the company
- Life insurance doesn’t cover critical illness, disability, or a replacement income stream in the event of being unable to work. For this you will need a specific Critical Illness or Income Protection insurance policy.
- Policies for Relevant Life insurance cease at age 75.
- Relevant Life insurance policies have a cap for the amount insured. This is set at 15 times your annual remuneration, taking into account salary, dividends and P11D benefits. This is still considered more than enough cover for most doctors and dentists.
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Interested in finding out more? Speak to Darren
Dental & Medical Financial Services have been helping doctors and dentists with carefully selecting insurance and protection products for over 25 years.
Tel: 01403 780 770
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