Relevant life insurance can be an efficient way for a business to offer specific policies to its employees, offering a flexible way to provide essential benefits to the staff. Whether you are a senior decision-maker in the business or a junior employee, thinking about the right kind of life insurance should be on your priority list.
With that in mind, here is a guide to help you better understand what relevant life insurance is and how it works.
What is relevant life insurance?
Relevant life insurance is a type of business life insurance that allows an employer to provide an individual death-in-service policy for its staff.
The policy is owned and paid for by the business, and set up on a life of another basis. This type of life insurance is only available to employees of a UK company. There must be an employer and employee relationship in order to take out a policy of this kind.
For that reason, if you are a sole trader, relevant life insurance may not be the most suitable option for you.
Why do you need relevant life insurance?
A business may take out relevant life insurance for an employee as part of an attractive benefits package, which could help to bring the right employees to the company. Relevant life insurance means the business is able to provide life cover as an employee benefit, which can be very appealing to those looking to join a company who look after their staff.
Relevant life insurance can be particularly beneficial for small and medium businesses. This is because SMEs may not have the staff numbers to warrant a group scheme, which is often used within larger organisations. In some cases, relevant life policies are taken out for high-earning individuals, who do not wish for their death-in-service benefit to form part of their lifetime allowance.
How does the policy work?
Relevant life policies use trusts to ensure that any proceeds from the policy are paid directly to the intended beneficiaries of the individual who is insured. It is always necessary that the trust is in place before the policy is issued.
This means that although the business pays for the policy, the pay-out will go the employee’s family, providing everything in the policy was correct at the time of applying.
The amount of cover is set using multiples of salary, and the level of cover will either remain the same from the start date until the policy ends or increase in line with inflation throughout the policy term.
A relevant life policy can provide essential financial support during a difficult time for the employee’s family.