There are different types of LIFE COVER plans on offer, and here are two choices. One looks at life cover for families, and the other considers options through a business.
Family Income Benefit
General life cover that pays out a lump sum (if a valid claim is made) is often in place to help settle the outstanding mortgage. That’s a great help, for the partner left behind and their children, but what about ongoing everyday items such as food, clothes, utility bills, childcare, or other expenses like holidays and university costs?
This is where a Family Income Benefit plan could deliver much-needed support. In the event of death, it would provide a regular tax-free income for your loved ones from the time of the claim to the end of the plan term.
It’s often taken out over a 10 to 20-year term, or whatever may be appropriate in your circumstances. The idea is that should you have a valid claim, then it’s in place to pay out until the children have grown up. The potential ‘total’ payout over time decreases the further through the policy you get, which is reflected in a lower premium cost.
How it works
If you took out a 20-year term, which was set up to pay out £20,000/year and it was claimed against after one year, then the family would receive £20,000/year for the next 19 years, equating to a total payout of £380,000 (if there was no index-linking).
However, if for the same plan, there wasn’t a claim until 18 years into the policy term, the total payout would be just £40,000. If, fortunately, there was no claim at all within the 20-year period, then the policy simply runs the whole term without any payout.
Relevant Life Plan
This is a life cover plan that’s set up by employers for employees (including directors), and is designed to pay out a lump sum to the family of the person covered, should they die across the period of the cover.
The plan could be in addition to any other ‘personally funded’ life cover that might be in place, and it’s largely designed for small and medium-sized businesses (with a few exceptions, such as Sole Traders and Limited Liability Partnerships).
A Relevant Life Plan can be a tax-efficient way to secure some all-important life cover. In this respect, do take advice from an accountant for further clarification.
Even though the company makes the payments (a saving for the employee on premiums against paying personally for life cover), it’s not typically treated as a ‘benefit in kind’, and would therefore not be included in the employee’s income tax assessments.
Also, those with a substantial pension pot may benefit, as the plan will not form part of the lifetime pension allowance.
And, as the plans are generally written into trust, any payout should not form part of the deceased’s estate, with possible Inheritance Tax benefits, plus it could be paid out quite swiftly.
Additionally, the payments may also be an allowable expense for the company when calculating its own tax liability.
If the employee leaves the company, the plan can be converted into a ‘personal policy’ (with some amends), or possibly be taken on by the new employer.
Whatever your status, do talk to us to find out if a Relevant Life Plan could be a suitable option for you.
HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Financial Conduct Authority does not regulate trust and taxation advice.
As with all insurance policies, terms, conditions and exclusions will apply.