A tax efficient way to ensure loved ones are protected should the worst happen
Contractor Relevant Life Cover (RLC) is a form of life insurance that pays out should a contractor die, making it very similar to a standard life insurance or death in service policy. However, a RLC is taken out in the name of the company, setup in a trust, and pays out a financial amount based on a pre-agreed multiple of the individuals combined annual salary and dividend income, giving clarity to all involved. Not only that, but there are a range of tax benefits that RLC provide to contractors.
Contractor RLC is a wholly allowable business expenses, making it far more tax efficient to run though the business rather than the individual paying for a similar policy from their own earning – after tax and other statutory deductions. As the policy is setup in a trust, there is not inheritance tax to pay, nor is it a benefit in kind, and it doesn’t count towards annual and lifetime pensions contributions.
This makes it a very appealing and affordable option to contractors who prudently plan and look to put protection policies in place and allows the defined beneficiaries to know they have a secure financial future, providing complete peace of mind should the worst happen.
The policy pays out a tax-free financial lump sum in the event of the death of an insured individual. This amount is often based on a pre-agreed multiple of the individuals combined salary and dividend income, meaning there are no grey areas and provides certainty for all involved.
Traditional life insurance policies are paid by individuals out of their own pocket and after the deduction of taxes from their income. Contractor RLP is paid by the company so provides a large saving, as well as benefiting from it not counting towards an individuals annual allowance.
The policy doesn’t detract from how much an individual can contribute to a pension scheme in their working lifetime, and the premiums paid do not count towards an individuals annual allowance.
As the policy is in the name of, and paid by the contractors company, it is not judged to be a Benefit In Kind (BIK) for the individual and results in them not having to pay income tax on those payments.
As Contractor RLP is setup in a trust and is in the name of the contractors company it does not form part of an individuals estate, meaning that any pay-outs are not subject to inheritance tax payments.
As the name of the product suggests…. contractors! It’s aimed specifically at small business owners where due to the small number of employees, such as single person or husband & wife Personal Service Company (PSC) a group life scheme isn’t warranted.
As already mentioned on this page there are numerous benefits to a contractor relevant life cover policy, including:
This is a decision that only you can make, and one that needs to be discussed with an expert advisor based on your requirements should the worst happen. The policy pays out a pre-agreed multiple of the individuals combined salary and dividends, often up to a multiple of 15, sometimes even higher depending on the circumstances and policy provider.