How does this type of policy work?
A company takes out a life policy on the employee and writes it under a discretionary trust. This can only be done for employees - not equity partners or members of a limited liability partnership.
Relevant life policies just provide life cover. The benefit has to be a term assurance paid in a lump sum and is normally paid tax-free through the trust. Cover can be level, increasing or decreasing and premiums can be for a fixed term or renewable but can't run beyond the age of 75.
Legislation doesn't allow the addition of critical illness and disability benefits. However, terminal illness benefit can be included.
Premiums paid by the employer aren't subject to income tax or national insurance, so an employee won't need to pay any additional tax charges for this policy. And in most cases, the benefits is paid free of inheritance tax.
The policy becomes even more tax efficient when you consider that the premiums are usually deductible for corporation tax. Premiums are normally allowable as a business expense as part of the remuneration structure of the employee.
This type of policy shouldn't be used for key person or share protection as benefits must be paid to an individual, not a business. The policy needs to be set up for genuine protection of an employee's dependants.
What are the benefits for advisers?
Relevant life policies sit halfway between personal and business protection, so they're ideal if you're new to business protection and don't want to jump straight into complex shareholder issues.
You can also use relevant life policies as an opportunity to find out more about a company and to start discussing the wider business protection issues that most small businesses face. Writing relevant life business could open up other opportunities for you.