When you work for yourself, as you’ll be well aware, you don’t enjoy the same benefits as those that are ‘traditionally’ employed. Those benefits you miss out on include sick pay and death-in-service, among others. Of course, the value that these bring when you need them is infinite so it’s paramount you, as a Contractor, put the right measures in place to protect yourself. When it comes to replacing death-in-service, life insurance is a good option but relevant life insurance is even better. Here’s why relevant life insurance makes sense for Contractors:
In case you needed a re-cap, life insurance is a protection product you’ll pay a monthly premium for so that when you die, your family (or chosen beneficiary/beneficiaries) will receive a one-off payment. If you are the main breadwinner, life insurance will give you the peace of mind that your family will be financially secure if you are no longer around to provide for them.
Relevant life insurance was designed to afford company directors the same benefits that large corporations enjoy – the head line being tax efficiency. This is where it differs from ‘normal’ life insurance. Firstly, the premiums are not subject to national insurance payments. Secondly, your business can claim corporation tax relief on the premiums. Thirdly, the premium is payable tax free. See just how much you could save here.
Relevant life insurance brings real value when the worst happens and your family need it most. If your life insurance is not placed into trust your loved ones will have to go through probate before accessing the funds from your life insurance, which can be a lengthy process. These funds will also usually be subject to inheritance tax. When your life insurance is placed into trust however, as it is typically with a relevant life insurance policy, your family will be able to access the funds almost immediately – relieving a huge amount of financial pressure at a difficult time.
The premium you pay for your relevant life insurance cover does not count towards the allowance you have for your lifetime pension. Which means the amount you can put into your pension pot won’t be impacted, and you can watch your pension grow as it should. This is because relevant life insurance is not treated as a benefit-in-kind; the premium is not included as a P11D benefit.
With all of that in mind, hopefully it’s clear why relevant life insurance makes sense for contractors beyond the benefits that traditional life insurance provides. If you want to know more and understand how relevant life insurance could benefit you, request advice here.