It is a little known fact that limited company directors can take out life insurance via their business rather than paying for it personally. Doing so can present a number of benefits. Here we are looking at the subject of directors’ life insurance, how it works, and the advantages it can offer.
What is directors’ life insurance?
Directors’ life insurance, otherwise known as relevant life insurance or relevant life cover, is similar to personal life insurance in that it pays out a lump sum to your chosen beneficiaries when you die.
The difference between directors’ life insurance and personal life insurance is that directors can choose to pay for the cover via their company, rather than out of their own personal funds.
Depending on the individual policy, insurers will usually allow cover up to around 15 to 30 times the insured’s total annual remuneration, including both salary and dividends.
What are the benefits of directors’ life insurance?
Paying for life insurance through a limited company introduces several tax benefits.
Directors’ life insurance premiums are an allowable business expense, meaning they are tax deductible and can therefore reduce your Corporation Tax bill.
Also, because relevant life insurance isn’t a benefit in kind, there is no need for directors to pay any additional income tax or National Insurance contributions (NIC). The employer doesn’t need to pay employer NIC either.
The policies can save directors considerably compared to a personal life insurance policy, especially higher earning directors. However, they should always be set up alongside a specialist trust to protect the beneficiary from any potential tax issues.
Using a relevant life trust means that there is no Inheritance Tax due on the benefit.
Who is eligible for directors’ life insurance?
Directors’ life insurance is designed for smaller businesses with insufficient employee numbers to quality for a group life insurance scheme.
Limited companies, partnerships and charities can take out a relevant life policy for their directors and employees. Sole traders, unfortunately, cannot, and neither can limited company shareholders.
Cover will usually be available for:
- Company directors with their own limited company
- Management consultants and contractors operating through a limited company
- Small business employees where group life insurance isn’t possible
- Higher earning employees looking for additional life insurance options that don’t ount towards their annual or lifetime pension allowance.
Where can I get directors’ life insurance?
There are numerous providers of relevant life cover. Some offer better benefits than others, and you may be able to obtain higher levels of cover by shopping around.
To find the best cover for your individual needs at the best rate, it is wise to consult an independent broker specialising in business insurance cover.
For general advice on allowable business expenses, the Office Assistants team is ready to help, so please feel free to get in touch with any questions.
