Updated: April 20, 2024
Relevant Life Cover for Self-Employed
Is Relevant Life Cover available if you're self-employed? Read on to find out if this is possible for you and your business.
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Relevant life cover can be a great tax-efficient way of buying an alternative to life insurance through your business. This cost-effective scheme is ideal for smaller companies without a group life scheme, allowing the beneficiaries of employees to receive a lump sum based on a multiple of their wages should they pass away.
However, with many types of self-employment available in the UK, is relevant life cover available for all these businesses?
In this article, we look at if you can get relevant life cover as a self-employed person, who exactly is eligible to take out this cover, and what other insurance options may be more suitable depending on your circumstances.
Can I get relevant life cover if I’m self-employed?
It depends. Employees of your company can benefit from relevant life insurance if it’s arranged by you, the employer. This also includes salaried partners/directors and salaried single directors of a limited company. However, a business owner who is classed as a ‘non-employee’ will be unable to get relevant life cover, as it’s only available when there is an employer/employee relationship.
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Who is eligible to take out this policy?
Legal entities with an employer/employee structure are able to take out relevant life insurance. This policy is ideal for:
- Businesses who want to provide life benefits to a smaller number of employees (typically not enough to set up a group life scheme)
- Higher-earning employees with a substantial pension fund who don’t want their benefits to form a lifetime allowance under their pension scheme
- Businesses who want to provide further benefits to their employees that exceed what is already offered
Below, we’ve listed different types of self-employed businesses to see if relevant life cover would apply or not.
If you are an employed director working through a limited company, you are eligible to receive relevant life insurance. It can be a great way to save on tax as, if you’re a higher-rate taxpayer, you could save around 50% on your monthly premiums as the cover is tax-deductible as a business expense.
A sole trader in their personal capacity as a business owner is not eligible to take out relevant life cover, as a sole trader is not a legal entity and cannot get a policy through the business. However, a sole trader business owner can apply for a policy on behalf of an employee.
Like sole traders, partnerships are not legal entities, so you cannot take out a policy in the name of the business. Instead, partnerships would have to get all partners to jointly apply for a policy on behalf of their employee. Equity partners in a partnership won’t be able to benefit from a policy.
Yes, relevant life cover can be arranged through a limited liability partnership for its employees as it is a legal entity, so a policy can be taken out in the name of your business. However, a member of a limited liability partnership will be unable to benefit from this cover as they are not classed as employees.
As a contractor, you are an employee of your own limited company, so you are eligible to take out a relevant life insurance policy through your company. A relevant life policy works in a similar way to ‘death in service’ benefits that you would have received while you were employed.
There is also no benefit-in-kind income tax charge for a relevant life policy because the company foots the entire bill, so you won’t have to pay income tax National Insurance Contributions to worry about.
Charities are allowed to have a relevant life policy. Legislation requires that benefits should be paid out to an individual or a charity, although they can be payable to a trustee for them to pay the funds to an individual or charity instead.
Why are some companies allowed and not others?
Mostly because of how tax-efficient taking out a relevant life policy can be. Relevant life cover works almost the same as standard life insurance, however, because you purchase a policy through a company, you can benefit from big tax savings, the premiums are paid out of gross fee income instead of net income.
They are also deductible as a business expense, saving you from paying corporation tax at 19%.
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Which companies offer relevant life cover?
Various insurance providers – both large and small – offer relevant life insurance. However, with so many policies available, how do you figure out which one meets your exact needs and requirements while still being affordable?
This is where an expert insurance provider can help. Thanks to their whole-of-market access, they can search the entire insurance market and recommend the best policies for your business. Providing you with quotes, they can also save you the time and hassle from searching through countless policies by highlighting all the important information for you.
What alternatives to relevant life cover are there?
If you are a self-employed individual with no employees, you can still cover yourself with another type of insurance, for example life insurance. You may also want to consider critical illness insurance, which can payout if you’re unable to work due to injury or sickness.
For the best advice, speak with an expert. They can provide tailored recommendations to ensure that you and your business are protected by finding a cost-effective policy which works for you.
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If you want to protect your employees with relevant life cover, it makes sense that you’ll want to get the best cover possible at the most competitive premiums.
The advisors we work with can help. Call us on 0808 189 0463 or make an enquiry and we’ll match you with an expert for a free, no-obligation chat about your options.
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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in relevant life cover. Ask us a question and we'll get the best expert to help.
Richard Angliss
Finance Expert
About the author
Richard Angliss has made a career in financial services which stretches over 40 years.
His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.
For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.
At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.
With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them. Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.
He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.
