As an employer, it is important to you that your employees feel valued and taken care of. One of the most impactful ways that you can do this is to offer a relevant life plan. But what exactly is a relevant life policy and what are the conditions on a relevant life policy? We explore how these limitations may impact your ability to access relevant life insurance as part of your business protection planning.
What is relevant life cover?
Simply put, relevant life cover is an insurance policy taken out by an employer on behalf of an employee to cover them during the time they work for you. It essentially functions as cover for death-in-service, without your employee necessarily having their own private life insurance policy. It is not the same as life assurance as this covers a whole lifetime, not a set time span, which is the crux of the relevant life policy. Of course, a relevant life policy is a good idea for those who have families to consider. It is also a benefit for employees for tax reasons, as the amount distributed upon death-in-service is tax-free.
Eligible business types
Many businesses are eligible for relevant life policies. Employees can qualify for such cover if they work for a limited company, or for a charitable organisation. Because a relevant life policy is a single life policy, it is generally utilised for those who do not have a wide employee base. For those who do not have enough employees to hold a group policy, individual relevant life policies are a good alternative. However, sole traders, and limited liability partnerships are not eligible.
Ineligible business types
Not all businesses are able to access relevant life plans, however. This largely depends on who you are within your business framework, as well as the number of employees you have. For example, if you are an equity partner or a sole trader, you are considered ineligible. If you are a member of a limited liability partnership, you are also not eligible for this kind of cover. It is also not possible to take out relevant life policies in order to cover business loans or to help with succession planning, and if you have a large employee base, then a group life scheme may be advised.
What are the limitations of a relevant life policy?
Some of the limitations on a relevant life policy include the amount that a business can insure employees for, which is up to twenty-five times an individual employee’s remuneration. This is the maximum amount, although the amount can reduce with the age of the employee. Generally speaking, the amount will cover the employee’s salary, benefits, shares and bonuses. Employers cannot take out relevant life policies on employees who are over the age of seventy-three, and the policy will need to end before an employee turns seventy-five.
Will you be able to offer a relevant life policy?
Though there are some conditions on relevant life policies for businesses, they are one of the most popular choices for providing death-in-service benefits for individual employees. It is quite usual that most of your employees will benefit from this, however, it is usually not used for covering critical illness or disability – though this can be provided through an employee choosing their own additional life insurance policy alongside their relevant life policy.
What are the conditions on a relevant life policy?
If you want more advice and guidance on the conditions that are applied to a relevant life policy or any other information regarding a relevant life plan, then get in touch. WIS Business Protection offers high-quality support and business protection insurance, including expertise in relevant life insurance and executive income protection, to those who need to keep their business and employees protected with full peace of mind. Contact us to find out more about how we can help you.
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