How relevant life plans can help future-proof your business

• The plan must provide for a lump sum on death before the age of 75.
• If an ill-health benefit is included, it can apply only during employment.
• The policy cannot have a surrender value.
• Any benefit must be paid to an individual or a charity – benefits will usually be paid by trustees through a trust and most providers provide a draft discretionary trust to use for this purpose.
• The main purpose of the policy must not be tax avoidance. 

If a plan does not qualify as an RLP, for whatever reason, the policy will be treated for tax purposes in the same way as any other policy effected by an employer for the benefit of an employee.

What are the limitations of RLPs? 

RLPs do have some drawbacks.

Policy rules are less flexible than those in traditional life cover. For example, once a relevant life plan is set up it cannot be changed. And cover is for an agreed duration, which means the plan must end once the person covered reaches 75. 

Lump sums must be paid out through a discretionary trust. That gives trustees the power to decide when beneficiaries will be paid if a person dies, as regular payments are not possible.

RLPS can be useful for higher earners who want more cover than their death-in-service benefits provide.

In addition, relevant life plans only provide death benefits. Critical illness is not covered, unlike some life insurance policies. And beneficiaries are normally restricted to family members and dependents.

If you are self-employed or an equity partner, you will not qualify for relevant life cover.

What benefits do RLPs offer? 

An RLP is a very cost-effective way for your clients – as long as they run businesses – to provide death-in-service benefits to their employees. They are tax-efficient for both employer and employee. Aside from that, the other main benefits are: