Small business owners understand the importance of providing financial security for their employees, especially in uncertain times. While offering group life insurance is a common way to extend benefits, it can be costly and complex to set up, particularly for businesses with a limited number of employees. However, there is an alternative option called relevant life insurance that offers a viable solution for businesses of all sizes. In this article, we will explore relevant life insurance and its significance in providing death-in-service benefits for employees and directors.
What is Relevant Life Insurance?
Relevant life insurance is a specialized life cover option designed for companies that do not have enough employees to establish a traditional group life insurance plan. Instead of creating a group policy, businesses can opt to pay for individual life cover for their directors and staff members. This type of policy is often referred to as death-in-service or terminal illness insurance.
Advantages of Relevant Life Insurance:
1. Tax Efficiency: Relevant life insurance offers tax-friendly benefits, making it an attractive option for high-income employees and directors. Individuals can utilize their pension lifetime allowance by considering a relevant life policy, thereby incorporating tax-efficient methods into their retirement savings.
2. Tailored Coverage: Premiums for relevant life insurance are based on an individual's lifestyle, age, and health. The coverage amount is determined by factors such as the individual's salary, mortgage payments, and other expenses. The company pays for the life insurance policy on behalf of the employee, providing essential coverage without the need for the employee to pay premiums.
3. Tax-Free Lump Sum: In the unfortunate event of an employee's passing, the company can provide tax-free lump sums to the employee's beneficiaries, usually their family members. This benefit is often extended to all employees, including directors and their families, thereby offering a valuable perk that enhances employee satisfaction and loyalty.
4. Flexibility in Coverage: Relevant life insurance policies offer flexibility in choosing between level and inflation-based schedules. Level plans adjust premiums to keep pace with inflation, while inflation-based plans allow policyholders to select an amount to increase future payouts. Some policies may even offer guaranteed increase options, enabling coverage adjustments for larger mortgages or salary increases.
Tax Advantages for Businesses:
By treating premiums as an expense, businesses can reduce their tax bills by claiming them as such. Additionally, relevant life insurance policies are written in trust, ensuring that beneficiaries receive the payout without being charged any inheritance tax.
Considerations for Employees:
While relevant life insurance can be a valuable benefit for employees, it may not provide sufficient coverage for all expenses, such as mortgages or childcare costs. As such, individuals should also consider purchasing additional life insurance to ensure comprehensive financial protection.
Life Insurance Options upon Leaving a Company:
It's essential to consider the implications of leaving a company when it comes to life insurance benefits. Employees who leave a company may lose their death-in-service benefit. However, they may have the option to negotiate life insurance with their new employer or ask them to cover the cost of life insurance.
Conclusion:
Relevant life insurance is a valuable financial tool for small business owners, providing a tax-efficient and flexible way to offer death-in-service benefits to employees and directors. The tax advantages, along with the ability to customize coverage, make it an appealing option for both businesses and their employees. When exploring relevant life insurance options, businesses should consider factors such as affordability, employee needs, and individual circumstances. By working with financial advisors or business specialists, companies can find the most suitable provider and policy that aligns with their unique requirements. Remember, comparing different life insurance policies is crucial to ensure the best fit for your business and its employees.
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as financial or investment advice. Always conduct thorough research and seek professional guidance before making any financial decisions.