Taking out a Relevant Life Insurance policy as a partner or parent can help to make sure your loved ones receive financial support if you’re no longer around.
Relevant Life insurance is a tax-efficient way of protecting your family’s future. It’s a form of insurance you can take out through your business to ensure your family receive financial support. A tax-free lump sum will be paid to your family which they could use to clear a mortgage, debts, day-to-day obligations or specific obligations such as school fees.
Relevant Life Insurance is very similar to regular life insurance but it is designed to save Contractors like yourself tax. Rather than taking the policy out yourself, it is taken out by your limited company on behalf of an employee or yourself. In doing so, you save tax as the premiums will not be paid from your personal post-taxed income. As long as you continue to make the monthly payments, you will be tax-efficiently protecting your family.
Top tip: If you write your policy into a trust, the payout will not form part of your estate. This means your family will not have to go through the long probate process to receive the funds. Speak to a Contractor protection specialist to find out more about trust and how they work.
When contemplating Relevant Life Insurance, you need to consider how much cover you actually need. This will depend on your circumstances and the needs of your family.
If you’re a homeowner, it’s likely that your mortgage repayments are your biggest monthly outgoing. As the main earner in your household, leaving the debt to your family could put them in a sticky situation. If they’re unable to keep up with the repayments, they may have to put the home up for sale to repay the remaining mortgage debt to the lender. Find out from your lender how much is due on your mortgage and how long left on the term. This will give you a rough idea of the minimum Relevant Life Insurance cover your family needs.
If you have a relatively young family, you will also need to allow part of the payout to cover childcare expenses. If you are no longer around to perform your responsibilities as a parent, your partner may require additional funding to support childcare arrangements and schooling. The amount of cover you need will depend on how many children you have and how old they are.
Lastly, you should consider any other debt that your family could be left with. If you’re the sole provider in your household, the payout from Relevant Life Insurance will need to replace the income you previously contributed to your family and home. This will help cover day-to-day bills and maintain your loved ones lifestyle.
If you’re unsure about how much cover you need, it’s always good to get advice. We’ve partnered with Broadbench, who are leading experts in Contractor protection.
The information in this article has not been written by Caunce O’Hara & Co Ltd or any of Caunce O’Hara’s employees. None of the opinions or views contained within this article are Caunce O’Hara’s nor do we accept responsibility for any financial advice given within the article.
Caunce O’Hara & Co Ltd do not provide Life Insurance policies nor advice regarding Life Insurance or accounting and bookkeeping.