Relevant Life Cover was approved by HMRC in 2009 and is a tax-efficient way for employees (including Directors) to pay for their life cover.
Prior to this, tax-efficient life cover was only available for employees if they belonged to a group death-in-service benefit. However, this was only available to large employers who qualified for such a scheme. Those small > and medium businesses were left unable to offer this.
Often based around either budget or a multiple of salary (including dividends and P11d benefits), Relevant Life Cover is a policy paid for by the business, but placed into trust to benefit your nominated beneficiary.
The business can claim Corporation Tax Relief on the monthly payment, and the person covered is not subject to a P11d (benefit in kind) tax on the policy. The individual also saves because they are not paying the premium from their net income, after having paid National Insurance and Income Tax on their income, before paying for the policy.
The lump sum pay-out of the policy is paid to the beneficiary via a trust, meaning it does not enter the business or the life assured's estate. This, combined with the tax benefits on the monthly cost of the policy make it currently the most tax efficient way to pay for your life cover.
The standard cost of Relevant Life Cover is the same as a normal Level Term Assurance policy and so there is no additional cost incurred to use this type of policy. Once the tax savings have been calculated, the cost is often around 50% of the cost of a personal life cover.