One of the valuable benefits that many employees enjoy is a death in service benefit. A comprehensive employment benefits package may also include earnings replacement and pension provisions. As you transition to the world of entrepreneurs, it becomes your responsibility to secure your own and your family’s future.
If you think whether you need life cover in the first place, you may want to ask yourself a powerful what-if question? Companies in many industries today must contend with rapid change and rising uncertainty. The same applies to our personal lives. Are you asking yourself the right questions?
Scenario planning is a powerful tool that can help you identify critical uncertainties in your life and explore different ways to deal with them. In practice, many of us are either overly optimistic or ignorant of reality. We often base our choices on best-case predictions about where the future will go and avoid contemplating the not so good outcomes. As a business owner, you wouldn’t leave the success of your business to chance. If so, why do many entrepreneurs do that with their families and loved ones?
As financial planners, we love asking questions and believe that a discovery meeting is an essential aspect of holistic planning. Having intense conversations about money and our deepest fears is hard and taboo for many people. We often fear being judged or may not have anybody we can trust. This is where an experienced financial adviser can add massive value by helping us to clarify what is really important in our life. And more often than not, it is the people around us and their well-being.
A Relevant Life insurance
When it comes to life assurance, a significant benefit of being a company owner is the ability to obtain that life cover tax-efficiently through the company. This type of cover is called ‘relevant life assurance’. It is your way of ensuring that your loved ones will be ok. One of the questions we get asked often is How much is “enough” to have peace of mind? Many factors influence the answer:
• Personal circumstances.
• Other resources, such as savings, investments etc.
However, often the cost of cover is one factor that influences our decision on protection a lot. As a limited liability company director, you can obtain life cover in a very tax-efficient manner.
A relevant life assurance plan is paid for by your limited company, written in trust, and the premiums are an allowable business expense whilst it is not considered to be a benefit in kind by HMRC. It is particularly attractive to small company owners who don’t have the resources or the need to set up a group life scheme.
A Relevant Life Plan can help both employers and employees to reduce their tax liability:
• The premiums are not usually treated as a P11D benefit in kind.
• The employee won’t pay Income Tax on the premiums.
• Both the employer and the employee will avoid paying National Insurance Contributions on the premiums.
• In the sad event of a claim the proceeds fall outside the estate for Inheritance Tax purposes.
While the Relevant Life plan can help you cover the gap in your own provisions, it’s important that you consider other types of insurance, which may be relevant to your business. My next guide will explore the importance of business protection in more details and explain how the loss of a partner, member or shareholder can have a major impact on the success of a business in terms of ensuring continued control for the remaining owners.
You’ve built your business up. Now you want to make its future secure. To find out more about our corporate financial planning. Get in touch with an experienced adviser.