We talk to Contractors every day, so we know that your biggest priority in life is protecting your loved ones. But when you work for yourself, you can lose out on the benefits, such as sick pay and death in service, that ‘traditional’ employees provide. As a Contractor, if you own a limited company, and already have life insurance in place, you should consider switching to Relevant Life Insurance as it’s tax efficiency could save you money. We have found the top 5 facts about Relevant Life Insurance that all Contractors should know.
5 facts about Relevant Life Insurance
1. Relevant Life Insurance is taken out by the limited company rather than the Contractor
Unlike standard life insurance that you pay for out of your own pocket, the monthly premium is paid for by a limited company and will cover a particular employee such as yourself. If you were to unfortunately die, the lump sum will be paid to your beneficiaries.
2. It’s not a benefit-in-kind
You do not have to declare Relevant Life Insurance on your P11D at the end of the tax year as it is not treated as a benefit-in-kind. It is considered a company expense, so you won’t lose any of your tax-free allowances and your company will enjoy the corporation tax relief on the premiums.
3. No income tax and, usually, no inheritance tax on the payout
As well as being tax efficient to pay for, Relevant Life Insurance is tax efficient when paying out. There is no income tax to pay as it is classified as a business expense and, when placed into a trust correctly, your family could benefit from not paying inheritance tax if the worst was to happen.
4. Your lifetime allowance for pensions is not affected
Relevant Life Insurance does not count toward your pension lifetime allowance. You can accumulate up to £1.03 million (for tax year 2018/19) into your pension pot before you have to start paying tax. Unlike lump sum payments from a pension scheme, payments made from Relevant Life Insurance are not included in your pension lifetime allowance.
5. No payout if the policy is cancelled
Because Relevant Life is a form of insurance, Relevant Life cover will stay intact for as long as your limited company keeps up the payments and the conditions of the policy is not breached - if you change your mind this is no surrender value.
The are endless benefits to switching your life insurance to Relevant Life Insurance but it is important that you select a policy that is right for you and your loved ones. If you are looking for an expert adviser who understands Contractors, we can help.
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