October 24, 2016

Essential Facts you should know about relevant life insurance

If you are the director of a small company that has a few number of employees, you must have thought of offering insurance coverage to all your workers. And in order to do so, you might have thought of opting for traditional insurance. But before doing so, you must have considered relevant life policy for once. This is a specialized type of insurance coverage, especially designed for the directors of small companies. Even though relevant life policy is a relatively newer option in the insurance market, it has gained immense popularity among the company directors. And this is mainly due to the huge tax benefits that it offers. So, if you are not much aware about the unique features of this policy, here is a detailed discussion about that –

How do you define relevant life policy?

Relevant life policy is a different kind of insurance policy, which offers a definite amount of money when an employee passes away. These covers are ideal for the directors of small start-ups, who want to provide coverage to all of their employees and companies that don’t contain the required number of employees to get eligible for a registered group life scheme. What is more, this policy also turns out to be an ideal solution for those employers who pay premiums for their own insurances.

What are the essential features of relevant life insurance?

  • Only the benefits that are prescribed in the policy, can be provided and nothing other than that.
  • The entire amount must be paid in a single term cover.
  • All the money should be paid after the client celebrates his 75th birthday.
  • The policy doesn’t have any type of surrender value and nothing of that sort can be implied on that.
  • One cannot apply for this policy only in order to avoid tax payments.
  • If required, a terminal illness or a disablement benefit can be included in the cover, during the service period of the employee.
  • The benefits can be conferred only on the trustee members, who can ensure that the sums are delivered to the nominated people.
  • It is customary to set up a discretionary trust, through which all the benefits should be transferred, after the death of an employee.
  • One gets a chance to avail the continuation approach, which allows an employee to opt for a personal cover for the same amount of cash for the rest of his life. 

How does relevant life insurance work? 

One of the key benefits of relevant life insurance is that it offers a huge range of substantial tax benefits. The problems that the shareholders or the owners of the company had to face earlier was that they had to pay the premium either from their post tax earnings or from their own account. Moreover, the premiums were subject to serious tax liabilities. But unlike these, the relevant life insurance premiums are paid by the company and that too, in a very tax efficient fashion.

Article contributed by: Alan Starc. Email Alan at starcalan@gmail.com.