Paying for life insurance? - let the taxman help with the cost of premiums

Are you paying life insurance premiums to protect a mortgage, your family’s financial security, or perhaps your children’s education fees?

As a company director, you may be able to achieve significant savings on the cost of cover. Dependent upon individual circumstances, we have been able to help cut the cost of premiums by as much as 50%. 

A ‘Relevant Life’ policy is a highly tax efficient method of paying for life cover because it is paid for by the company. It is effectively a single life ‘Death in Service’ policy.

Two distinct benefits are:

·        premiums are corporation tax relievable as a business expense

·        premiums payable by the company are not treated as a benefit-in-kind by the taxman

This means there is:

·        no national insurance liability for employer or employee on the premiums

·        no income tax liability for the employee on the premiums

Furthermore, the proceeds of a death claim are payable to the nominated beneficiaries free of inheritance tax as payment is made via a discretionary trust. 

‘Relevant Life’ cover can also be particularly useful in the following circumstances:

·        Smaller companies where it is not possible to establish Group Death in Service because the number of employees is too low

·        *Members of a Group Death in Service scheme who require life cover over and above the scheme’s maximum benefit level

·        An individual whose pension funds are valued close to the Pension Lifetime Allowance (currently £1.5m), as 55% tax is paid on any excess. Death in Service cover counts towards this allowance. Relevant Life Cover does not.

*Death in Service benefits are normally restricted to a multiple of salary. Relevant Life Cover multiples can importantly include dividends. This can be extremely useful where, on the advice of their accountant, a director’s income is heavily biased in favour of dividends.

Case Study

A director personally pays £200 per month for life cover. This is paid out of income that has suffered income tax at 40% and National Insurance at 2% on the top part of income. The ‘gross’ cost is £313.93 per month after 20% corporation tax relief.

Alternatively, the company pays the £200 per month premium. Corporation tax relief at 20% (£40) brings the ‘net’ cost down to £160 per month. A SAVING OF 49%. It has been assumed that the company pays the smaller companies rate of corporation tax, and national insurance at the contracted-in rate of 13.80%.

Qualifying criteria: Must be single life, level cover; provide only life cover, and must end before age 75

If you would like to arrange a ‘no cost, no obligation’ consultation with one of our financial advisers, please call us on 01895 236335 or visit www.wardwilliamsfs.co.uk