Building a business takes years of hard work and dedication so naturally, you may be concerned about unexpected events that threaten the success of your company. Fortunately, there are several types of business protection that could help you protect your own interests, and the interests of the company during difficult situations.

In our three-part series, we will explore some of the different types of business protection in more detail.

This month, you can find out more about relevant life cover.

Read on to learn how this type of protection could support your family and your employees if the worst happens.

Relevant life cover is a type of life insurance policy that protects you and your employees

Relevant life cover is a type of life insurance policy that allows a business to offer death in service benefits to employees or directors of a limited liability company, or a limited liability partnership.

As a business owner, you may be able to use relevant life cover as an alternative to a personal life insurance policy.

The policy is set up by the business on behalf of you or your employees, and the company pays the premiums. A relevant life cover policy must then be placed in a trust – a legal arrangement that transfers assets to another party to be managed on behalf of a third party.

If you pass away while employed by the company, your family or chosen beneficiaries will receive a tax-free lump sum payment directly from the trust. This means that the death benefits do not form part of your estate. Consequently, your beneficiaries will not pay Inheritance Tax (IHT) on the funds.

Relevant life cover differs from other types of protection, such as a group life insurance policy for the business. This is because group life insurance typically offers the same level of cover to all employees, and the provider often specifies a minimum number of employees.

Conversely, relevant life cover is underwritten on an individual basis. As such, you have full control over how many people you include, and what level of cover each person receives.

Crucially, you can cover yourself individually and receive the same benefits as personal life insurance, while this wouldn’t be possible with a group life insurance policy.

The right protection could ensure your family are looked after when you’re gone

Certain types of protection are designed to prevent losses to the business, and we will explore some of these later in the series.

Relevant life cover, on the other hand, doesn’t protect the business against unexpected shocks. Instead, it ensures that your loved ones are financially secure if the worst happens to you.

If you were to pass away without protection in place, you could leave your family in a difficult position. They would lose your income, meaning it may be harder to manage their general living costs and save for the future. This would only add additional stress while they are dealing with your passing.

Yet, if you have relevant life cover in place, your family may receive a lump sum that they could use to clear the mortgage, pay the bills, and contribute to savings and investments for the future.

As a result, they can maintain financial stability in the short term and continue working towards their long-term goals.

Relevant life cover could be more beneficial than personal life insurance for several reasons

Relevant life cover and life insurance both serve the same purpose – protecting your family financially in the event of your death. Yet, relevant life cover may be preferable for several reasons.

Firstly, relevant life cover may be a more tax-efficient option than personal life insurance. This is because your business pays the premiums, making the payments tax-deductible. Consequently, paying for relevant life cover through the business could reduce your taxable revenue and help you mitigate your Corporation Tax bill.

Also, as mentioned earlier, your beneficiaries won’t pay any tax on the lump sum they receive, and the wealth won’t form part of your estate for IHT purposes. As a result, your loved ones retain the full death benefits from the policy.

Bear in mind that placing the policy in a trust adds additional administrative steps to the process and can be complex. As such, it may be useful to seek professional advice to ensure that you’re being as tax-efficient as possible.

You may also consider offering relevant life cover as a benefit for your employees. This could help you attract and retain talent, potentially reducing the costs associated with high staff turnover.

If you don’t have relevant life cover in place, you may want to consider it so you can protect your loved ones against the unexpected.

In the next article in our business protection series, you’ll be able to explore the benefits of shareholder protection.

Get in touch

Are you a business owner in need of support managing your wealth?

Email hello@cordinerwealth.co.uk or call 0113 262 1242 to speak to an experienced adviser today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or trusts.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.