Why Relevant Life Cover is Essential for SMEs

Many SME business owners would love to offer their employees financial support such as life insurance. However, setting up a group scheme may not be the best option, especially if you don’t have many employees.

There is however another option in the form of relevant life cover which can be set up on an individual basis. You can, therefore, tailor the cover amount and duration for each policy.

So, why do only 30% of SMEs know about it?

A study by Legal & General found that over 86% of businesses with profits less than £50,000 were not aware of the product, with 80% of businesses set up in the past two years having no idea such product exists.

The study also found that 73% of businesses were open to the concept of relevant life cover after they understood the concept.

 

What is relevant life cover?

Relevant life cover is a life insurance policy that allows you to offer a death-in-service benefit to your employees. It is paid by your company but pays out to your employee’s beneficiaries upon the event of their death.

It is typically used by businesses that aren’t large enough to establish a group life scheme, but it can also be helpful for high-earning employees who might exceed their personal pension lifetime allowance. This means that, depending on how your group life scheme is set up, a claim may be included in the employee’s pension fund, whereas claims paid under relevant life cover never count towards a person’s lifetime allowance. It is also beneficial for members of group life schemes who want to top up their benefits as some group life schemes can be restrictive.

 

How does relevant life cover work?

Relevant life insurance is much like a normal life insurance policy. An individual is assessed based on how much cover is required, their health, age and lifestyle.

The only difference is that you can place the ownership under the company meaning that the business pays the premiums and offset the costs as a taxable expense. If the insured person dies while working for the company, a tax-free pay-out will be made to their beneficiaries.

Relevant life cover can either be for a set amount or linked to inflation so that the pay-outs reflect the cost of living at the time of payment.

 

What’s the difference between relevant life cover and group life insurance?

There are many benefits to both relevant life cover and group life insurance, and it will be dependent on your business’s individual needs as to which is the best fit for you, if not both.

Here’s a quick rundown of the main differences and similarities of relevant life cover and group life insurance:

  • Both group life insurance and relevant life cover are not treated as a benefit in kind and so those insured do not have to pay any income tax.
  • Relevant life cover is usually more suited to smaller businesses as group life insurance can be restrictive for businesses with only a few employees. If your business is larger, group life insurance can create a cost-efficient method of providing death in service benefit to your employees.
  • As well as this, group life insurance provides a tax-free sum up to 12 times the salary of the employee covered, while relevant life cover can offer between 15-30 times the salary dependent upon age at the time of the application.
  • Group life insurance offers a ‘free cover limit’ which is the amount of cover that each individual scheme member can have before any medical evidence is required. This cover limited is usually calculated as a fixed amount of cover multiplied by the number of scheme members. As a result, the larger the scheme the higher the free cover level.

 

Business Benefits

Offering relevant life cover has many different benefits:

  • Corporation tax relief on premiums
  • Directors and owners can cover themselves through the business
  • Employee perk for your staff
  • Works as an attraction and retention tool to show employees they are valued
  • You can select the multiple of salary on an individual basis (rather than a group basis)
  • You can offer the benefit to select employees rather than having to offer it to everyone on a group basis

 

Employee Benefits

Although not technically an employee benefit, there are many positives that arise when you have implemented relevant life cover:

  • Gives employees insurance without costing them
  • High earners benefit as some group life schemes count towards the annual pension lifetime allowance
  • Increases employee satisfaction, engagement and happiness as they feel valued by their employer
  • Benefits are usually free from inheritance tax
  • If the employee were to leave the business, the cover can be transferred into a personal policy

 

If you are interested in finding out more about relevant life cover or group life insurance, call us on 0330 333 9100 or email us at information@busybeesbenefits.com.