This does not constitute advice and advice should be sought in all instances before acting on it.
According to a 2019 National Statistics estimate, small to medium-sized enterprises (SMEs) consisting of 0-249 employees make up 99.9% of the country’s 5.9 million businesses. Businesses with 49 employees or less are classified as “micro-enterprises” and represent 99.3% of that percentage.
This is important for your business because, in order to get life insurance for your company, many insurers require you to have at least five employees.
We can deduce that many small companies won’t qualify for cover. But there is an option available so you can provide death-in-service benefits for your employees in a tax-efficient way.
As well as a lump sum payout to an employee’s family, some policies might even allow a payout if the employee is diagnosed with a terminal illness (life expectancy of less than 12 months) which could be a huge help in someone’s final days.
If you’re new to relevant life plans (RLP), here are a few things to know:
RLPs can move with the employee, providing a way for your employees to retain coverage after they move on to another job. Their new employer might even want to take over the policy or the employee can request a change to personal cover within a certain timeframe. Many providers even have the option to request personal cover at any time and some policies even have additional benefits like allowing terminal illness to continue with their personal plan.
There’s no need for the beneficiary of the plan to pay income tax on the benefits as it’s not treated as a benefit-in-kind. And under normal circumstances, the benefits aren’t subject to inheritance tax, either. This is especially great if you struggle with Lifetime Allowance because benefits paid from a relevant life plan are not included in an employee’s lifetime allowance for pension benefits.
As a bonus, the premiums you pay on the plan may be classed as an allowable company expense (as it is ‘wholly and exclusively’ for your business) when it comes time to calculate your tax liabilities. Plus, neither you nor your employees need to pay National Insurance on the policy’s premiums.
How cover is calculated
Like a traditional death in service policy, the guaranteed sum with a relevant life policy is also based on multiple salaries. The standard practice when calculating maximum cover amounts is to use the maximum multiples of salary, depending on the age of the insured. It includes salary, regular dividends paid in lieu of salary, and any benefits-in-kind.
Is a RLP right for you?
If you’re the owner of a small business and want to learn more about relevant life plans and how you can incorporate this employee benefit in your overall business plan, don’t hesitate to get in touch with us today. We can help you find the right plan that balances your employees’ needs with your own, and doesn’t break the bank.
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