Relevant Life Plan
The plan will have no cash in value at any time, and will cease at the end of the term. If premiums are not maintained, then cover will lapse. The policy may not cover all definitions of a critical illness. For definitions of illnesses covered please refer to the Key Features and Policy Documents.
A Relevant Life Plan is a death-in-service benefit taken out by a company on behalf of an employee.
This type of policy pays a lump sum if the employee dies during the term of their employment. More often than not, a Relevant Life Plan also provides a payout if the employee is diagnosed with a terminal illness. It is important to note, however, that terminal illness claims will not be paid in the last 12 months of the policy.
What are the main benefits?
For the employer
The premiums may be treated as an allowable expense in calculating your tax liability.
And, unlike a registered group scheme, these policies have no effect on the amount of money you can contribute to or accumulate in your pension scheme.
For the employee
Relevant Life Plan policies are often tax-efficient for high earners. This is because the premiums are paid by the company, meaning they are not usually liable to employee income tax. Premiums/benefits don’t count towards the employee’s annual or lifetime allowances for pension purposes and the plan isn’t classed as a registered pension plan meaning membership won’t cause loss of certain lifetime allowance protections.
In addition, the benefits are, in most instances, paid free of inheritance tax - provided they are paid through a discretionary trust.
Who might Relevant Life Plans be suitable for?
- Small businesses that have a small number of employees and do not qualify for group life schemes
- High-earning employees or directors who have substantial pension fund savings. A Relevant Life Plan means their death-in-service benefits do not impact their pension allowance
- Members of group life schemes who want to top up their benefits beyond the scheme rules
There are some individuals for whom Relevant Life Plans are usually not suitable. They include the self-employed, equity partners or members of limited liability partnerships.
Are there limits to the cover?
In order for the employee to qualify for the tax concessions, certain rules must be satisfied:
- the cover must be paid in a single lump sum before the age of 75
- only death benefits can be provided
- benefits should be paid through a discretionary trust
- beneficiaries should be restricted to the employee’s family members and dependants
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.