Bringing life to Relevant Life

21 May 2021
You may not realise that some clients in your client bank could benefit from a relevant life plan.

Join Gregor Sked and Shelley Read discussing some of the reasons why clients who are business owners should perhaps consider Relevant Life Policies as a means of providing death-in-service benefits for their employees.

Hi everyone, I’m Gregor Sked from Royal London’s Intermediary Development and Technical Team.

In today’s episode we’re going to be looking at what’s often dubbed as the new kid on the block with regards to business protection, and that’s Relevant Life policies.

And to explore this with me I’m joined by my colleague Shelley Read, one of Royal London’s Senior Protection Development and Technical Manager.

Hi Shelley!

Hi Gregor, thank you for having me.

So, many listeners might pick me up on my reference to business protection in my introduction there, and rightly so, as Relevant Life Policies aren’t actually pure business protection. However, they do fit hand in glove in conversations with your business owner clients.

That’s right, Gregor, Relevant Life Policies can open a world of opportunity to talk business protection, but let’s not forget that these protection policies themselves can be beneficial to many types of clients.

At its core, Relevant Life Policies are life insurance plans set up to provide employees of small businesses with a single life death-in-service arrangement.

I just want to pick up on one thing you mentioned there about the size of the business why would a small business want to consider a Relevant Life Policy over, say a Group death-in-service arrangement?

Well, typically Group schemes won’t cater for fewer than five employees in a business. So, when you consider that 99.8% of all UK businesses are classed as Small to Medium Enterprises (or SME’s)1 and within that 95.7% of businesses have less than 10 employees2, you can start to see that there may be many businesses missing out on having a death-in-service scheme for their employees.

So going back to how they work. Let’s assume I own a small building company, I've got four employees. I’d like to set-up some form of death-in-service for them and I’m going to do that through a Relevant Life Policy. What else do I need to be aware of when setting this up?

Well, we’ve already mentioned the policy must be set up as life cover only and set-up on a single life basis. So in your example, Gregor, you as the employer would set the policy up to cover your employees and also pay the premiums while they’re employed with you. The policy must also be written under a discretionary trust for the benefit of the employee, their spouse or civil partner, or indeed any children and that includes grandchildren or stepchildren.

You mentioned the policy has to be written into a trust. Does the employer have to be a trustee?

Again, Gregor, that’s a really interesting point, because with these types of policies they’re being provided as death-in-service schemes, but of course people will move employer from time to time. So the really good thing with some life companies is that they will allow for not only the employer to not have to be a trustee but also provide the employee with the ability to take the plan with them if they do leave, which, you wouldn’t see with a group life scheme.

So, there’s obviously massive benefits there for the employee. But for the employer, I’m imaging that this can be a really good employee retention tool?

Yes, that’s one of the benefits. But probably the one which most listeners today are interested in hearing about is the tax efficiency.

Yeah, I’d agree, Shelley. Especially because wherever you read about Relevant Life Policies you tend to see a mention of some of the tax efficiencies that they bring. And it’s worth mentioning that there are tax benefits for both the employer and the employee.

But, it’s probably best to break this down into two sections; the first being, how are they actually tax efficient for the employer?

Well the employer may be able to benefit from corporation tax relief on the premiums paid, so long as the local Inspector of Taxes is happy that the premiums are ‘wholly and exclusively for the purpose of trade’ as part of the employee remuneration. However, it’s difficult to be precise on this as different inspectors and accountants have different views and as far as I’m aware there’s no HMRC precedent on this.

Furthermore HMRC doesn’t treat premiums paid by the employer as a P11D benefit in kind meaning the employer and employee won’t pay National Insurance on any premiums paid.

And just on that point, an employee will also benefit from the premiums and the benefit paid out on a claim not being counted towards their annual or lifetime allowance. Again something which you wouldn’t see on a group arrangement. So for clients who may have a significant pension fund, a Relevant Life Policy could be a really good consideration for them to think about.

Absolutely Gregor. And just one final thing. We spoke about these policies needing to be set up in a trust earlier. Which comes with the added benefit that the plan does not belong to the employee so it doesn’t form part of their estate for inheritance tax purposes, but like all non-pension discretionary trusts, the trust itself can be subject to a periodic and exit charge.

Thanks Shelley. So, there’s definitely a lot to think about, but there’s a real opportunity too for our listeners to look at their client bank and have a look to see if they have clients who maybe have businesses themselves, maybe they've got clients who want to top up existing cover they've got within an existing death in service scheme, or maybe they've got clients who have significant sized pension funds.

So with that in mind, that really brings this week's protection podcast to a close. All that’s left for me to say is thank you so much Shelley for joining me this week and a big thank you to all of our listeners wherever you are. We’ll be back soon with another protection podcast.

Source: 1 - Gov.uk, Buiness population estimates fot the UK and regions 2020, 8 October 2020, accessed April 2021.
2 - MerchantSavvy.co.uk, UK SME data, stats and charts for April 2021.

Source: 1 - Gov.uk, Buiness population estimates for the UK and regions 2020, 8 October 2020, accessed April 2021.
2 - MerchantSavvy.co.uk, UK SME data, stats and charts for April 2021.

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