The Legacy Guide to Relevant Life Plans: Protecting Your Employees and Your Business

In today’s business landscape, offering competitive benefits is more than a perk—it’s a necessity. One standout option for employers, particularly small businesses and directors, is the Relevant Life Plan. 

This unique life insurance scheme not only provides peace of mind but also boasts significant tax advantages. 

Let’s delve into what Relevant Life Plans are, who they’re for, and why they might just be the smart financial choice your business needs.

Understanding Relevant Life Plans

A Relevant Life Plan (RLP) is a term assurance plan that employers can set up to offer individual ‘death in service’ benefits to their employees. 

If the covered individual dies or is diagnosed with a terminal illness while employed during the term, the plan pays out a lump sum. 

What sets RLPs apart is that they are paid for by the employer, offering a direct benefit to employees without the typical financial burden on their part.

Who Benefits from Relevant Life Plans?

Relevant Life Plans are particularly suited for:

  • Small Businesses: For those with too few employees to justify a group scheme, RLPs provide an elegant solution to offer valuable ‘death in service’ benefits.
  • Directors: Individuals who want to secure their own ‘death in service’ benefits without the need to extend a scheme to all employees find RLPs an ideal choice.
  • High Earners: For directors and employees whose ‘death in service’ benefits could potentially affect their ‘lifetime allowance’, RLPs offer a way to receive these benefits without impinging on their allowance, set at £1,055,000 for the 2019/20 tax year.

It’s important to note that RLPs are not available in scenarios lacking an employer/employee relationship, such as sole traders or equity partners in a partnership.

The Cost-Effectiveness of Relevant Life Plans

The real allure of Relevant Life Plans lies in their tax efficiency. Unlike traditional life insurance, 

RLPs are designed to be a tax-efficient benefit that an employer can provide to an employee. Here’s a simplified comparison to highlight the potential savings:

For a non-Relevant Life Plan, the total cost to the employer and employee combined could amount to £196.20, factoring in national insurance contributions and taxes.

With a Relevant Life Plan, the total cost drops to £81.00 after tax adjustments—a significant 49.03% saving. This dramatic reduction is due to the tax-efficient nature of RLPs, where premiums are not subject to National Insurance contributions or income tax, offering a straightforward, cost-effective solution.

These examples are for illustrative purposes, based on the 2019/20 tax bands, and individual circumstances can affect the exact figures.

Why Consider a Relevant Life Plan?

For businesses looking to enhance their employee benefits package without the hefty price tag, Relevant Life Plans offer a compelling option. 

They not only provide financial security for employees’ families in the event of untimely death but do so in a manner that is tax-efficient for both the employer and the employee. 

This makes RLPs an attractive component of a comprehensive employee benefits strategy, particularly for small businesses and high-earning individuals.

Get Expert Advice

Understanding the nuances of Relevant Life Plans and how they fit into your overall business strategy can be complex. 

That’s where The Legacy Wills Company comes in. With over 25 years of experience in estate planning and financial advisory, John Ireland and our team are poised to help you navigate the intricacies of RLPs and other estate planning tools.

If you’re considering adding Relevant Life Plans to your benefits offering or just want to learn more about how they can benefit your business and your employees, reach out to us. 

Book a discovery call with The Legacy Wills Company for personalised advice and solutions that fit your unique needs.

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