September 28, 2016

Relevant Life Insurance and Start-Ups

As the owner of a start up you might as well be looking to provide a life insurance cover to your employees. However, you need to think that as a start up, your business still has  a long way to go in terms of revenue generation and you can’t really afford to shell out huge sums of money to sponsor a traditional life insurance cover for each of your employees. There are serious tax liabilities on these types of policies. A relevant life policy turns out to be a worthy investment. Here the premiums are paid from a company’s account but in a tax efficient manner.

Why Relevant Life Cover?

 

As a small business as you slowly start working towards your employee retention techniques you might as well consider sponsoring a life insurance policy that is included in the employee benefits package. Whereas, a traditional life policy would mean that you are paying up considerable taxes, qualifying for the tax efficient group life schemes would not be possible if your company doesn’t have at least 5 employees. The relevant life policy is particularly suitable in this scenario whereby not only is the employer able to set up a death in service benefit for his worker in a cost effective manner, but the worker also stands to make the most of his status as a beneficiary. It is particularly suited for small companies. The benefits paid to his family as a lump sum after his deaths are tax free. Here are the other features of the cover:

It is single standalone policy sponsored by the employer of a small business with the employee being named as the insured.

The cover is available to employers or directors executing business through limited companies, limited liability partnerships, partnerships or as sole traders.

The policy stops providing protection as soon as the client celebrates his 75th birthday.

There is no surrender value attached to the policy.

A trust is set up to pay the benefits of the policy to the family of the insured after his death.

Advantages.

 

  • The premiums paid by the employer are not taxed as they are considered to be benefits in kind.
  • Neither the employee nor the employer has National Insurance obligations.
  • The employer is entitled to Corporation Tax Relief.
  • There are no P11D charges associated with the policy.
  • As already mentioned, the payouts made to the family as a lump sum are free of tax restrictions as well.
  • The insured can draft a letter of wishes whereby he can clearly mention when he wants his nominees to receive the payouts. The trust while paying the benefits might as well keep the contents of the letter in view while paying out the lump sum. But the letter doesn’t generally carry an absolute legal significance.

Article contributed by: Sam Payn