How Does Relevant Life Cover Work?

Relevant life cover is tax-efficient life insurance, purely because paying the premiums through the business and sees additional benefits through tax and national insurance efficiencies. Although the Director or employee will benefit greatly from it, it is not classed as a benefit in kind and the policy payments do not affect the employee’s pension allowance.

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How Is Relevant Life Calculated?

It’s all very well knowing the benefits and purpose of relevant life, but seeing the effect these benefits have on your monthly payments will show just how much you can save if you switch from a standard life insurance policy to relevant life.

Here, we have based the calculation on a £20 current monthly premium, an income tax rate of 45% and 30 years remaining on the current policy.

Let’s take this calculation into a standard life insurance basis:

Your currently monthly premium is paid by you personally from your disposable income and it amounts to £20 per month.

Say your income tax is at 45% and you pay 2% national insurance, to cover the £20 a month plus tax and NI you would be paying £37.74.

The employer would then have to pay NI at 13.8%. That’s £42.94 per month, £515 a year and £15,460 for the 30-year policy length.

On a relevant life basis:

The same numbers with a relevant life policy would mean the company wouldn’t pay corporation tax, so the total over the 30 year policy period would be £5,760 instead of £15,460.

We can work out a £9,700 saving that is put back into company profit by subtracting the relevant life rate from the standard life rate (£15,460 – £5,760 = £9,700.)

Seeing a breakdown displays that losing the tax and national insurance costs paid on a standard life insurance plan and switching to relevant life will save you thousands.

*Calculations are based on the current tax rates (as at 2018): standard rate taxpayers =12%, higher rate taxpayers = 2% and employer national insurance = 13.8%.

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Actual Monthly Cost of Your Cover
How Does Relevant Life Cover Work?
How Does Relevant Life Cover Work?
Personal Net Payment ()
What you have to earn gross including tax to pay the premium ()
How Does Relevant Life Cover Work?
How Does Relevant Life Cover Work?
Personal Net Payment ()
What you have to earn gross including tax to pay the premium ()

Relevant Life Policy Premium Benefits For an Employer:

No national insurance payments
Corporation tax relief

Relevant Life Policy Premium Benefits For An Employee

No national insurance payments
No income tax payments