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April 5th 2016 / BY: Wisteria

As a company owner you could be missing a trick with life and critical illness insurance cover

If you’re a company owner and paying for life and critical illness insurance personally, or concerned about the costs. You may be missing a trick.

Recent legislation changes have led to an important opportunity for business owners. Traditionally, Relevant Life insurance was an offering to employees on a life only basis, and critical illness cover had to be funded by the individual. This has now been changed, so that you are able to offer this benefit to employees (including directors) on a life and critical illness basis.

This is a key enhancement for businesses, as it is an expense for business purposes and is not taxed as a benefit in kind. In addition, the insurance will be paid out tax free on claim.

Moreover, this is a significant development of the Relevant Life proposition, as critical illness insurance costs a substantial amount more than life insurance only. From this financial point of view, a greater expense can be offset against corporation tax, and there is a lesser cost to the employee personally. This is clearly outlined in the example below:

37 year old non-smoker £500,000 Life and Critical Illness cover to age 70 with guaranteed premiums

table_insurance
*Based on a 40% tax payer. Dividend taxation for a director would be different, principle still applies

This example demonstrates that the net cost of paying for this cover through a Relevant Life policy is about half the amount if paid through a non-Relevant Life policy.

Some key considerations

Maximum cover is based on a multiple of income and age. The more a person earns, and the younger they are, the greater cover they can get

  • i.e: A 36-45 year old can have up to 8 times multiple of income as a benefit, while a 46-55 year old can have up to 6 times multiple income
  • Note: Higher multiples are available subject to a full financial questionnaire which must be approved by insurer

The life assured must be an employee (or an employed director), and it cannot be a joint policy

On claim, the policy is paid out into a trust.

  • Trustees (ones who control the funds in a trust) can be family members, and do not have to be associated with the company
  • Beneficiaries can be spouse, children, a charity etc.
  • The employee can choose if the critical illness payment is made to the trust or to themselves personally

This could be a significant benefit to company owners and contractors trading as a limited company, as it allows business owners to protect their families in a very tax efficiency way.

How can we help?

If you would like to know more about how to set up your own arrangements in the most tax efficient manner, please get in touch with Gwyn Edwards of Hadlow Edwards Wealth Management using the following details:

Phone: 07816 931182
Email: gwyn.edwards@sjpp.co.uk