How to advise on tax and added benefits

This article is part of
Guide to financial resilience and protection

A relevant life policy is, effectively, a single-life, death-in-service plan which an employer takes out on the life of an employee. 

As it is a tax-deductible expense, this can be a tax-efficient route for business owners to take instead of using life insurance. While the premiums are paid by the employer, they are not considered to be a benefit in kind.

According to Sean Dunlop, protection proposition manager for Scottish Widows, this can be a useful tool in the insurance kit for employer and employee.

He says: "As the policy is set up in trust, the claim benefits are not subject to the pension lifetime allowance. 

"Business owners can also use the tax advantages to save money on the cost of their life insurance if they take out a relevant life policy through their business, rather than an individual policy themselves."

Many products also come with business care propositions from the provider, which could provide legal and tax support for employers for the duration of the policy.

From an employer's perspective, this can be a valuable part of an employee's benefits package and can also include those ancillary value-added services that can engage employees and help provide rounded wellness benefits.

There are, however, caveats with using relevant life policy, as Mehta points out. Firstly, it should not be considered as a replacement for individual personal protection cover and employees should take out income protection and potentially critical illness cover on their own. 

He explains: "If an employee were to leave the organisation, they would lose access to that cover. 

"Equally, these plans do not come with CIC, they are single-life only, and more often than not, a plan will not cover the full amount of protection that an individual might need."

As ever, it depends on what the employer client's circumstances are and the level of support that SMEs will need. 

Marcus Primhak, business protection manager at LV, says: "Rather than simply adapting personal products to fit a significantly different market, it is important the core product and the value-added services reflect the financial and pastoral support businesses need when they have suffered the unexpected loss of a key employee or owner."