Business Protection Specialist, Michelle Costello returns to the Mortgages, Money and More podcast to talk about Relevant Life Plan products.
What is a Relevant Life Plan?
Relevant Life Cover or a Relevant Life Plan is essentially life cover. In the corporate world, it’s known as ‘death in service’ cover.
It’s life insurance that pays out if you pass away as an employee of a business. It’s just been given a different name because this is a product specifically bespoke to business owners.
The cover is paid for by the employer, but claims are paid out to the beneficiaries – who are often the family of a Limited Company Director.
Can you add on critical illness cover to a Relevant Life Plan?
As life cover, by definition, critical illness is not something you can add onto a life plan, but you can certainly take out critical illness cover as a personal protection product. Some providers do offer what they define as serious illness cover on a life plan, but the list of conditions is much more comprehensive when you take critical illness cover as a separate policy.
What are the main benefits to an employer in setting up a Relevant Life Plan?
The one that attracts people most is the tax efficiency. There’s no tax payable on the policy premium or on the payment when you claim. It’s a tax free benefit to the beneficiary of the policy.
Fundamentally, the main benefit is the cost effectiveness of having that policy in place through the business as opposed to personal protection. It does the same job as personal protection in that it pays out if you pass away, plus, it costs less.
What are the benefits to an employee?
Potentially, having this cover in place would make you want to stay with your firm. In the corporate world, death in service cover is deemed as a perk. It means there is some fallback for your loved ones if you were to pass away.
Getting this benefit from a small company might just stop you leaving for a job in a big corporate firm. So it’s a loyalty tool for small businesses – it shows employees that they are valued and looked after.
Who are Relevant Life Plans aimed at?
These plans are aimed at smaller businesses that don’t have the means or the ability to take cover out under a corporate umbrella with a major provider.
These tend to be limited companies – often where you are the director of that company and the only employee. In essence, it’s an affordable way of getting your company to pay for your life cover.
If you’re a director of a limited company and you currently have personal life cover, it’s well worth looking at whether a Relevant Life Plan is more beneficial. Nine times out of ten, the answer will be yes.
As long as your business is generating an income, then you will save money by getting covered through your business. It’s a win-win – having something in place that is cost effective, tax efficient, and still gives that peace of mind to your loved ones.
How do I set up a Relevant Life Plan?
Seek professional help. It will just cost you a little bit of your time to sit down and go through the details. As your advisor, I will come back to you with your options – you choose the most appropriate approach, and all the work is done by a broker rather than yourself.
We would start with a meeting – because I can’t put anything in place for anybody, whether it be personal protection, a mortgage or business protection without knowing anything about you. We’ll talk about your business, what’s important to you, your hopes for the future and then I will go away to find the right product that fits.
Then there’ll be a follow up appointment to go through my recommendations. Based on our discussion, I’ll explain how I’ve identified the right product for you and your business. Then there is an application to complete – which I will manage for you.
Once that’s in place we’ll schedule an annual review just to be sure. The past 18-24 months have taught us that things can change very quickly. So we’ll just have a catch up to check whether anything has changed, whether the same things are still important to you and whether we need to adapt your cover.
As I always say to my clients, if you’re paying for something, you need to know it’s relevant. The last thing you want is for somebody to make a claim on this policy and discover that it doesn’t do what you set it up to do. Like anything in life, you want to know your money is well spent.
What does it cost to talk to a protection advisor?
It’s a free service – we don’t charge clients or their company. We’re here to help because business protection isn’t easy to buy online like a car policy. We’re specialists who will explore and understand your needs and priorities to get you the right cover.
Are there any cover limits that we should be aware of as business owners?
There are limitations for tax purposes – an insurer would set a certain level of cover, and they need to understand for tax purposes why you’d want to exceed that level of protection.
We will have that conversation in that initial interview to understand how much cover you need – we’ll always ask, why do you need that amount? It’s not necessarily justifiable to ask for £2 million cover when your business profits are around £50,000, for example.
What else do we need to consider for a Relevant Life Plan?
If you are looking to put this in place, just ensure that at the application process stage that you have a conversation about putting your policy into a trust.
Very simply, a trust allows the claim money to go to your beneficiary in a timely manner. It moves the policy outside of your estate, so it doesn’t go into probate. It will also be free from inheritance tax. It doesn’t cost anything to put a policy into trust. It’s just an added element of paperwork to be completed.
This is sometimes missed because it’s an extra element that can be seen to be complicated and confusing. But it’s certainly an important thing to look at.
Summing up…
If you’re a business owner with personal protection, move on to a Relevant Life Plan because you will save so much on tax. And who doesn’t want to do that, as well as having the right cover in place for you and your loved ones at a time of need.
