The Tax Savvy Way to Pay for Life Insurance as a Contractor
Posted on 10th April 2018 by Rachel Lees
Most of us understand that life insurance is necessary. If you want to protect your loved ones in the worst case scenario- where you are no longer able to- life insurance is essential. If you’re covered, the lump sum your family will be paid out in the event of your death could cover the outstanding mortgage, leaving them debt free, as well as ensuring them the potential income they would have benefited from if you were still alive. In that way, life insurance enables you to protect the lifestyle your loved ones currently lead while you are here and earning.
What most Contractors don’t know is that there is a tax savvy way to pay for your life insurance.
Relevant Life Insurance
When you move from being employed to a Contractor, you often lose the benefits that being employed allows for; from sick pay to pension contributions and cover for legal liabilities. Well, when it comes to securing life insurance now you’re a Contractor, there’s a benefit you do have and it’s called Relevant Life Insurance.
Simply put, a Relevant Life Policy is an effective way of getting your personal life insurance paid for by your business, as a company expense. Let me explain that in a little more detail…
Life Insurance the old way
If you currently pay for your life insurance from your own personal bank account, you will be paying out of post-tax income. If you pay for it via your business account, the chances are you will be taxed on the payment as if it were income. That means you’re spending more money than you have to.
Life Insurance the tax savvy way
The Relevant Life Plan from Relevant Life Expert however offers some very special advantages to Directors and employees of small businesses looking for Life Cover. The headline benefit is tax efficiency.
While the life insurance is personal to you and your employees (if you have them), the policy counts as a legitimate business expense, so it is tax deductible.
Save tax in 6 ways with Relevant Life Insurance
- You immediately save tax by the business paying the life insurance premium.
- It’s not treated as a benefit-in-kind.
- Premiums are not subject to National Insurance payments for the employer or employee.
- Your business can claim Corporation Tax Relief on the premiums.
- The policy proceeds are written into trust from outset. This ensures the benefit is ring fenced from tax, avoids probate and goes to the right person if a claim is made.
- The policy proceeds do not count towards your lifetime allowance for pension contributions.
How much could you save?
Let’s use the example that you own your own business and pay £100 a month on life insurance from your own pocket.
For starters, if you’re a 40% taxpayer, there’s income tax and 2% employee national insurance contribution, plus 13.8% employers’ national insurance contribution.
In fact, after 19% corporation tax relief the net cost to your company works out at £158.93
If you pay £100 a month for a Relevant Life Plan you won’t pay any national insurance contributions or income tax on the premiums but you still get the 19% corporation tax relief which means the net cost is only £81.
That’s a huge saving of £77.93 a month or £935.16 over the year!
How to qualify for Relevant Life Insurance
Essentially, Relevant Life Insurance is designed to afford small businesses the opportunity to benefit from the same tax breaks large corporations enjoy through group life schemes. This means that to qualify for Relevant Life Insurance you simply have to be a salaried director or an employee of a ltd company and resident in the UK.
Sounds good doesn’t it? It is.
To speak to a Relevant Life Expert and get your Relevant Life Insurance quote, visit here
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.
Broadbench’s Relevant Life Expert is authorised and regulated by the Financial Conduct Authority number 590288 in respect of mortgage and insurance mediation activities only. Registered address: 2 Stanley Road, Poole, Dorset. BH15 1QY The company is registered in the UK, number 07491324.
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