Aviva Relevant Life and Critical Illness Policy – How it works
In the past, relevant life policies only included a death benefit and terminal illness. Aviva, however, has brought about a considerable market change with the launch of a relevant life and critical illness policy. This has caused disruption amongst insurance providers and many discussions regarding its legitimacy. Regardless, Aviva’s relevant life and critical illness policy has been launched and seems to be compliant with the relevant legislation. Therefore, it qualifies as a legitimate relevant life policy with tax-efficient benefits.
Relevant life and critical illness
Aviva has revisited the law regarding relevant life cover and has added critical illness to their policy. In other words, they’ve introduced a new policy that isn’t available from other providers. The plan is available for customers aged between 18 to 64 and the maximum policy is 50 years with a maximum sum of £3 million. The policy, which is written in trust, covers 40 conditions with Aviva’s definitions. In addition to this, there are 11 additional conditions that pay out at a lower amount.
With Aviva’s new relevant life and critical illness policy, up to 51 illnesses can be covered at a full or partial amount. In addition to this, the policy can have guaranteed or renewable rates. Whilst there has been some discussion regarding its legitimacy, it seems that their new policy has been well-researched and backed up by the Queen’s Counsel. Aviva has also said the policy has been agreed by HMRC before launch.
- Tax efficient critical illness and life insurance combined
- Offset premiums as business expenses
- No national insurance to be paid for either business or employee
- Income tax deferred
Customers can be eligible for the policy up to the age of 64, which is lower than life cover is normally. Usually, it is between 69 for an increasing policy and 73 for level life cover. The policy is also single cover so there is no option to add a spouse or children to the policy.
- Lower age limits – when the policy expires insurance is likely to be more expensive based on age
- Must fit under certain legal terms to ensure that policy is tax efficient
- Only certain illnesses are covered
How has Aviva done this?
It seems that Aviva has reinterpreted the current legislation on relevant life cover and has successfully found a loophole. Their interpretation of the Income Tax Act 2003 is backed by external legal advice including the Queen’s Counsel and HMRC. They’ve set out their changes and how they have achieved adding critical illness in a document on their website.
It’s always best to check with your local tax office to ensure that you get qualified advice on the tax purposes of your life insurance and critical illness policy.
Tax-efficient life insurance
Tax avoidance is a topic that regularly comes up in the media these days. It is often frowned upon as a general rule. However, it can be argued that relevant life insurance is a fiscally efficient way of buying life insurance. With the ability to extend such a policy to include critical illness, it provides a wide range of benefits for consumers. Despite this, it’s important that consumers know relevant life is not eligible for tax relief if tax relief is the sole purpose of the policy. Therefore, reasons for attaining such a policy should be carefully considered.
Relevant life and critical illness are tax efficient under Aviva’s policy as a rule, but you’ll need to meet certain terms.
What this means for the industry
Since the introduction of relevant life policies, there is still little uptake by end consumers. However, Aviva’s relevant life and critical illness cover has spurred on a number of discussions surrounding the policy. This has brought unprecedented media attention to relevant life plans and what it means for businesses, which can only be a good thing. It can now mean that more employers and advisors will look into the benefits surrounding the policy. With hope, the more people recognise the benefits, there will be more uptake of relevant life policies. Whilst it’s not possible to take out a relevant life plan purely based on tax relief, it is a policy that should be considered by employers.
Who does it benefit?
It is a great option for employers to provide a death in service benefit for their employees. Higher earning employees with substantial pensions can benefit from an additional pot as it doesn’t count in the lifetime allowance. Furthermore, smaller businesses can provide single life policies for their employees. With fewer employees, it was never possible to get group life schemes as they were limited. Now, with smaller companies with just one or two directors, they can provide an individual life insurance policy and reap the tax benefits too.
Is this just the start?
It is likely that other insurance providers will follow Aviva’s lead when it comes to relevant life and critical illness. Whilst Royal London and Legal and General have had their say on the matter, they’ve decided to opt against it for the time being. That being said, there’s no reason why other providers will look more thoroughly into current legislation regarding relevant life cover to find their own interpretation. What we hope this means there is more information surrounding relevant life to increase the uptake. More informed customers ensure that they are happier with the policies they take out and tax is often a concern. Especially, when it comes to your business.
For more advice on life insurance including Relevant Life Cover and Critical Illness, contact one of our advisors. Alternatively, you can get a free quote on business life insurance today to find the right kind of policy that suits you.