Life insurance for contractors
Working as a contractor, it can be difficult to obtain life insurance without paying out of your own pocket. However, life insurance for contractors is a necessary replacement for a death in service benefit you’d get through a company. If you work as a contractor, life insurance can be essential to help protect your family financially; paying off outstanding debts, clearing the mortgage and covering funeral expenses in the event of your death.
The good news is that contractors can now benefit from relevant life insurance.
Tax-efficient life insurance for contractors
Until recently, it was only large businesses that were able to purchase life insurance for their employees. Life insurance for contractors, however, was more difficult to obtain. Normally, they would invest in a personal policy and pay out of their own pocket.
More recently, contractors who have set up a limited company can benefit from a tax-efficient life insurance policy called ‘relevant life insurance’. Relevant life cover is a tax-efficient life insurance policy designed to be run through the business. The policy provides a death in service benefit similar to what you would receive if you worked for a larger company.
Aimed predominantly at small companies, relevant life insurance is still relatively new to the market. Contractors can benefit too when they set up a limited company and can now have access to the same level of cover. Life insurance for contractors is now less complicated to obtain.
What is relevant life insurance?
Relevant life insurance is a life insurance policy that provides a financial sum to the dependants of the individual insured. Unlike a personal policy, the premiums are paid for by the business, which means tax savings can be made.
Relevant life insurance is a policy that is designed for people employed by a company, so contractors who do not have a limited company cannot benefit from this type of policy. As long as you are receiving a salary from your limited company, you can benefit from relevant life cover.
How is relevant life insurance tax efficient?
Because the premiums are paid for by the business and not out of your own personal income, they can be offset against corporation tax. The policy is not seen as a ‘benefit-in-kind’ and, therefore does not need to be included as part of your P11D form. Instead, the premiums are run through as a business expense, so you can get tax-relief back on the monthly amount.
What’s more, no national insurance is payable for either the company or the individual and premiums are not counted towards your annual pension allowance limit. Therefore, contractors with a large pension pot are still able to benefit from tax-relief on pension contributions whilst still having peace of mind that you have a life insurance policy in place.
Writing the policy into a trust
This type of life insurance is normally written into a discretionary trust. This means you have more control over who receives your assets. You can choose your own beneficiaries and nominate a trustee to distribute the money as you intended. When a life insurance policy is written into a trust, it also means that the benefits won’t be liable for inheritance tax. This provides further savings for your dependants.
What happens if you stop trading as a limited company?
If you decide not to carry on working as a contractor, then you may be eligible to transfer the policy to your new employer. Provided that they agree to pay for the cover. As the policy is written into a trust, it makes it easier to transfer over.
Alternatively, you can take on the policy as a personal life insurance policy. However, doing it this way means that you will lose the tax benefits. It does mean that wherever you work, you get to keep the policy. Life insurance premiums go up with age and if you suffer from health conditions. Therefore, keeping a policy from when you are younger means you can retain your cheaper premiums.
How to access Relevant life cover
Life insurance for contractors isn’t difficult to get hold of. If you own a limited company and don’t yet have insurance, then relevant life insurance could be right for you. Our advisors are able to handle the whole process for you, from searching for the best quotes to the application process.
Simply click here for more information or request a quote on your relevant life cover.