The perfect life insurance balance
It’s easy to get carried away with business insurance and let’s face it, you can ensure nearly any risk now. However, what’s the right balance that provides you with suitable cover for a monthly premium that is comfortable.
Using a combination of Relevant Life and Executive income protection covers many eventualities. If you die, the relevant life policy looks after your family. If you are off work for a wide range of reasons, the income protection policy still pays your business the income you would have otherwise made and can continue to pay your salary until you are well again. Both policies are entirely tax-deductible as a business expense with zero benefit in kind tax, so as well as providing a broad range of cover, they are incredibly tax-efficient as well.
What protection do you need?
When it comes to life insurance, we all must think of a worst-case scenario, it’s not pleasant, but it is necessary to ensure our families are well looked after if something terrible happens.
The most common way to provide this protection is with a life insurance policy. In short, you pay a premium each month for a certain level of cover. This cover is a lump sum of money that will be paid to your family or anyone else you choose. We refer to these people as beneficiaries. In the event of your death, you set the period the cover will be in place for, referred to as the term, and if you die within this term, the policy will payout. If you are fortunate enough to survive the policy’s complete term, it ceases, and you are glad that the policy was never needed.
Life insurance policies are already popular and usually sold along with a mortgage. However, as a business owner, you have the option to set this policy up through your business and treat the amount you pay each month, the premium, through the business as a fully tax-deductible expense. This may not sound that important; however, over the lifetime of a policy, one client we helped saved over £27,000 during the policy term, all by just making tax savings due to his business paying the premiums.
The policy you would need is called a Relevant Life policy. This specific type of policy is HMRC approved and offered by the leading insurers globally, such as L&G, Zurich, Aviva, and a handful of others. Only this type of policy will be tax-deductible and personal policies, even if the business pays for the premiums, are still not tax-deductible.
Putting a relevant life policy in place would provide the peace of mind that your family are covered should you die. The money can be used to help them adjust to a new life, pay school fees, cover university costs and possibly pay off any debts or mortgage.
What is you don't die?
There is a much higher probability you will be off work due to sickness or an accident at some point in your career. If this would lead to loss of income for your business, you could find it challenging to meet your salary obligations and pay your bills each month.
This is where an income protection plan would be helpful.
Income protection is a policy that offers you cover in the form of monthly income, and your business pays a monthly premium for this cover. For example, if usually withdraw a salary of £5,000 a month from the company, you could insure £4,000 of this so that even if you were not able to work due to sickness, the business would still receive this income and could therefore use it to pay you a salary, even though you are not working.
The policy covers many conditions such as a bad back, stress, and general sickness accompanied by a doctor’s note. This makes the chance of using it at some point much higher than a life insurance policy and usually for a much cheaper premium than a critical illness policy that sometimes people have in place personally.
Why do you need both policies?
Using a combination of Relevant Life and Executive income protection covers a wide range of eventualities. If you die, the relevant life policy looks after your family. If you are off work for a wide range of reasons, your business still receives the income you would have otherwise made and can continue to pay your salary until you are well again. Both policies are entirely tax-deductible as a business expense with zero benefit in kind tax, so as well as providing a broad range of cover, they are incredibly tax-efficient as well.
For more information on the best cover for you, feel free to reach out to us.