Relevant life insurance

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Page written by Chris Godfrey. Last reviewed on September 21, 2024. Next review due April 6, 2025.

For many people, buying life insurance privately can be too expensive and pre-existing medical conditions may mean they cannot get cover. However, relevant life insurance is an individual policy that employers can offer to their directors and key employees to eliminate these issues. For organisations that have too few employees to qualify for group life cover, relevant life insurance can provide your employees with generous benefits, boost workforce morale, reduce employee attrition, support recruitment and make your business a better place to work.

Read on to learn more about this affordable and top-rated employee perk.

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What is relevant life insurance?

Relevant life insurance policies are single life, stand-alone ‘death in service’ plans. As a specialist type of business insurance, relevant life cover is a cost-effective way for an organisation to provide term assurance on the life of an employee, including directors. The insurance pays a cash benefit to the insured employee’s next of kin or dependents if the individual dies or is diagnosed with a terminal illness whilst they are employed during the term of the policy.

Relevant life insurance allows businesses to provide individual death in service benefits to their staff when the organisation is too small to qualify for a full group life insurance scheme. Highly tax efficient and affordable, the cover is an ideal way for businesses to reward their best workers with a valuable perk that can boost employee morale, help with employee retention and new recruitment and deliver on the company’s need to provide a duty of care.

Why would you buy relevant life insurance for your employees?

Tax efficient for employer and employees – all premiums and paid out benefits qualify for full income tax, national insurance and corporation tax relief
Affordable – premiums can be significantly cheaper than those paid privately by individuals
Boosts company morale – buying this protection sends a strong message of employee well-being to your staff and gives them peace of mind. They know a generous benefit will be paid to their loved ones if something should happen to them
Supports your employer value proposition (EVP) – makes your business more attractive for new hires and helps retain your current workers

How does relevant life insurance work?

The organisation takes out a plan on the life of the employee, or employees if the business wishes to protect more than one worker or director

Each plan is tailored to the individual and only covers one person

The employer pays the policy premium, not the employee

If the insured employee dies or is diagnosed with a terminal illness (with a life expectancy of less than 12 months) while they are employed by the company and during the term of the policy, the insurance pays out a benefit that can be a pre-agreed lump sum, or a multiple of the worker’s final pay – for example, 4 x salary

The death benefit is paid to nominated next of kin or dependents and is usually free of inheritance tax

Who does relevant life insurance cover?

Relevant life insurance covers:

Employers seeking to provide death in service benefits, but with too few employees to qualify for a group life insurance scheme
Paid directors wishing to secure their own death in service benefits but without purchasing a plan to cover all their organisation’s employees
High wage earners, such as directors, seeking death in service benefits that do not form part of their lifetime pension allowance. (The lifetime allowance is £1,073,100 in the 2023/24 tax year, but the allowance will be abolished in April 2024 and no limit will then apply)

What does relevant life insurance cover?

Relevant life insurance covers salaried directors and nominated employees, providing death in service benefits in the event they die or are diagnosed with a terminal illness while they are employed by the business and within the term of the policy. Cover is not available where there is no employer/employee relationship. Sole traders, equity partners of a partnership, or equity members of a Limited Liability Partnership do not qualify for this type of policy.

Is relevant life insurance essential?

It is if you want to protect your company’s directors and best employees but cannot set up a full group life insurance plan. More tax efficient and affordable than private life insurance policies, relevant life insurance can save you money whilst providing peace of mind to your directors and your staff.

What are the benefits of relevant life insurance?

Relevant life insurance delivers death in service benefits that can be delivered as a lump sum – for example, £100,000 – or as a multiple of the insured’s final pay, such as 4 x salary. The employer selects the level of benefits, and the business can also choose from a level or inflation-linked pay out. With level benefits, the pay out remains the same during the term of the policy. With inflation-linked benefits, the pay out rises in accordance with the UK’s annual inflation rate. (As the pay out rises, the premium also increases). An inflation-linked policy will prevent the value of the cover from being eroded over time and is particularly suitable for policies that have an extended term.

How much does relevant life insurance cost?

Just as no businesses are the same, so no relevant life insurance policies are the same. The premium you pay will be determined by a number of factors unique to each insured employee. This will include their health, age, smoking status and personal lifestyle (hobbies, sports, etc).

Is it cost-effective?

Yes, it is. Relevant life insurance can provide quality term assurance at a significantly lower cost than if the insured individual purchased their own private policy. Relevant life insurance also achieves a high level of tax relief that is beneficial to both employer and employee.

How should the plan be set up?

Relevant life cover is arranged on an individual and life-of-another basis. The employer is the policyholder, and the employee is the person insured. While benefits can be arranged as a lump sum, many employers set the benefits amount as a multiple of their employee’s salary. Insurers will typically suggest a maximum amount of cover based on the employee’s age and gross annual earnings. The younger the employee is, the higher the multiple will be. Some insurers may offer salary multiples as high as 35x the final salary for workers in the 17 – 29 years age band. (Keep in mind that higher payouts mean higher premiums).

Ultimately, because every organisation will need relevant life policies that are customised to fit the individuals they wish to insure, it makes sense to compare different offerings from different insurers before making any purchase. (You can start the process here).

How Swoop can help

Keeping your directors and key workers motivated and happy is key to business success. Don’t let the death of an important employee cause hardship to their dependents and impact your workforce morale. Contact Swoop today to compare top-quality relevant life insurance cover from a range of insurers and to discuss all your business insurance needs.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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