Tax Efficient Life Cover for Contractors & Directors

If you’re a contractor or limited company director, are you paying for life insurance out of your own pocket?

If the answer is yes, then you may be paying too much.

In a quick summary, if you move the cost of your life insurance policy from your personal outgoings to your company expenses, your business will benefit from lower premiums because of the tax savings.

Relevant life insurance is one of the most tax efficient ways of providing life insurance for an employee/director of a limited company.

HMRC Approved

The premiums are usually HMRC-approved as a tax-deductible business expense as long as you meet certain conditions when setting up the policy.

Relevant life insurance premiums are not treated as a benefit in kind and there are no National Insurance implications. As well as the tax benefits, relevant life insurance for directors and contractors can protect your mortgage, your family’s future standard of living, your income by safeguarding your future earning potential and your health.

What are the benefits of relevant life insurance for a company director?

When you work for yourself, you are probably missing out on benefits that those who are employed may take for granted.

As someone who works for themselves, you won’t receive any sick pay or a death in service benefit. So, moving your current life insurance policy to a relevant life insurance policy within the business is one of the benefits that you can receive as a business; tax efficient and could save you money.

Why is relevant life insurance for Directors worth looking into?

Apart from being one of the most tax efficient ways of providing life insurance for an employee/director of a limited company, premiums are not treated as a P11D benefit.

Neither the employee nor the employer will incur any National Insurance implications – in the event policyholder dies, the pay-out is paid tax free.

A company director in the 40% tax bracket could make significant savings by paying for their life insurance policy through the business because of the tax implications.

However, all directors must meet strict conditions when setting up a relevant life policy.

Additionally, as the premiums are paid by the director’s company rather than the employee, it is classed as a legitimate business expense, saving tax for you as the business director.

Who can be covered by a relevant life insurance plan?

Generally speaking, relevant life insurance will provide protection for the following types of people:

  • Employers looking to provide death in service benefits however don’t have enough employees to set up a group scheme
  • Directors wishing to provide their own individual death in service benefits without taking out a scheme on all employees
  • High earning individuals such as directors where death in service does not form part of their lifetime allowance

What are the potential savings when you compare relevant life insurance to traditional life insurance?

If you own your company and pay £100 a month from your own pocket for your life insurance, it could cost your company more than it should.

For example, if you’re a 40% taxpayer – there’s income tax, 2% employee national insurance contributions and 13.8% employer’ national insurance contribution.

After 19% corporation tax relief, the net cost to your company works out at £158.93 per month for you to pay the policy personally.

However if you pay £100 a month for a relevant life plan, you won’t pay any national insurance contributions or income tax on the premiums but you will receive the 19% corporation tax relief – making the net cost only £81 per month.

That makes a saving of £77.93 a month which equals to £935.16 over a year!

Get in touch with us today about Protection Insurance

If you would like to discuss a relevant life insurance plan further or are interested in any other types of protection insurance such as critical illness and income protection, don’t hesitate to get in touch with us.

Call us on 01270 443510 or complete our contact us form and we’ll be in touch with you as soon as possible.