Earlier this year we spotlighted how Relevant Life Plans (RLP) had come into their own given the coronavirus pandemic.
Just to remind you … an RLP is in essence a tax effective life insurance scheme that allows firms to provide an individual death in service benefit for their employees – designed to pay a lump sum if the person dies.
They can be particularly beneficial for small businesses that do not have enough eligible employees to warrant a group life assurance scheme.
They can also be attractive for company directors and high-earning key employees who have substantial pension funds and do not want their benefits to form part of their lifetime allowance. It currently stands at £1,073,100 for the 2020-2021 tax year, above which there is a one-off charge of 25 per cent if paid as pension or 55 per cent if paid as a lump sum.
For a higher-rate taxpayer, there could be a substantial saving in using this method. For a basic-rate taxpayer the saving is still significant.
Who are the best providers?
OnlineMoneyAdvisor states: “This is a subjective question as the best relevant life cover provider for one business might be unsuitable for another. That said, the market leaders in this sector include Aviva, Legal & General, Vitality, Scottish Widows and Royal London. Each will calculate your premiums differently, assessing the level of risk involved in the agreement by looking into the age, health and lifestyle of the employee(s) you’re seeking cover for.”
It adds: “Policy costs can vary dramatically, which is why it’s advisable to speak to an expert before applying.”
A comment I would endorse.
So what is the latest in terms of coronavirus and life plans generally? And are existing policies being honoured?
Moneytothemasses notes: “The good news is that all insurers have confirmed that they will pay out on life insurance if you die as a result of contracting coronavirus.”
What then of new policies?
The web site continues: “New applications for life insurance will cover you for death linked to coronavirus.
“The policies have not changed and are available in the same format as they were previously. However, there are a few extra questions to answer and where medicals or medical evidence from your health records are required the application process can be a little slower.”
This can result where you have had symptoms suggested or confirmed of coronavirus and/or have had known exposure to the virus, you have health problems that required you to shield, or you have recently tested positive.
“None of the reasons should stop you being able to arrange life insurance in the long run. But some insurance companies are postponing applications if you fall into one or more of these areas. Postponement could last a month or two or even up to six or 12 months dependent on the circumstances.”
An RLP is owned by the employer and premiums are paid by them. However, a new employer could take over the policy and the premiums. Alternatively, you can change to a personal life policy but in this instance the tax saving would be lost and you would pay your premiums from your net earned income.
Companies enjoy corporation tax relief (so long as the premiums are wholly and exclusively for the purposes of the business) and there are no National Insurance Contributions on the policy payments.
For employees, the family is protected if the worst happened.
RLPs are not available where there is no employer-to-employee relationship. For example, sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.
There is no cash-in value.