Updated March 2018 – Aviva Relevant Life and Critical Illness Policy
In the past, relevant life policies only included a death benefit and terminal illness. Aviva brought about a considerable market change with the launch of a relevant life and critical illness policy. This caused disruption amongst insurance providers and many discussions regarding its legitimacy. Regardless, Aviva’s relevant life and critical illness policy has been launched and seemed to be compliant with current legislation.
**UPDATE MARCH 2018** Aviva has now revised their relevant life and critical illness policy and renamed it relevant life and ‘significant illness cover’. Advisors and companies had expressed concern that their previous critical illness cover was actually breaching tax guidelines.
Current changes include partial payment options and the extremity of the illness. For example, advanced cancer, a serious heart attack and stroke are covered.
The company have stated existing policies will not be affected, nor those quoted before the change.
Relevant life and critical illness
A relevant life plan traditionally would come without the critical illness policy attached. This is because of the tax implications. Relevant life insurance qualifies for tax relief because it is deemed to be for the purposes of the business. When critical illness is added to the mix, it’s more for the benefit of the employee, than for the business. Therefore, tax relief is no longer eligible.
When Aviva launched their relevant life and critical illness product, they brought a big change in the market. No other provider offered this type of policy. It is available for customers aged between 18 and 64 with a maximum of 50 years. You can get up to £3 million worth of cover. The policy is still written in a trust to enable savings on inheritance tax. Originally, there was 40 conditions and 11 additional conditions to add on.
Companies such as Vitality, Royal London and Legal and General decided not to launch a similar plan and still aren’t following suit.
The advantages of such a policy
With Aviva original relevant life and critical illness policy, up to 51 illnesses were covered at a full or at a percentage. In addition to this, the policy was able to have guaranteed or renewable rates. Whilst there has been some discussion regarding its legitimacy, it seemed that they were backed by the Queens Council.
- 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
The cover originally only went up to the age of 64, whereas traditional policies could go up to 70+. This type of critical illness doesn’t have the option to extend to the family either.
- 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
- No family cover
**UPDATE MARCH 2018**
Basically, HMRC told one provider that their relevant life and critical illness policy did not qualify for tax relief. Well, it does, but only if the critical illness leads to retirement.
From our understanding, if an employee falls ill or becomes disabled during employment, it’s classed as a ‘relevant benefit’ that would normally be taxed. However, if the reason for payment is due to ill health that leads to retirement, including critical illness, then it can be classed as an ‘excluded benefit’. A benefit that isn’t taxed upon.
For the most part, Aviva refused to back down claims from other insurance companies that their policy did not qualify for the tax rules. Yet, in March 2018, they decided to relaunch their product with a few changes.
Aviva’s Relevant Life and Significant Illness Cover
The policy has now been rebranded with a new name and new definitions. The relevant life and significant illness policy has once again been extensively researched, as Aviva claim. And HMRC is in agreement that the policy qualifies for tax relief. Once again, the company has explained this on their website. But essentially, they will continue to provide cover for advanced cancers, serious heart attacks and strokes in the event that they lead to retirement.
Aviva has also removed partial payment options and only one lump sum will be paid out in the event of a claim.
Tax-efficient life insurance
Relevant life insurance is a fiscally efficient way of buying life insurance so its no wonder people want to add on serious illnesses too. 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.
Most providers suggest that a critical illness policy on top of their relevant life will actually help their customers more.
The new policy is eligible, but it seems that the illness has to lead to retirement in order to class it as ‘relevant life’.
However, documentation from Aviva suggests that this can include retirement from your current role and returning to work in a different capacity.
What this means for you
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. And more careful consideration of introducing critical illness and what the benefits are for you.
For customers, they have more options but that can cause added complications. It’s always best and easiest to check with your financial advisor which policy is right for your specific needs. If you’re looking for a more comprehensive critical illness policy that protects you and your family, then Aviva’s policy won’t be right for you.
I have an existing policy – what happens now?
Aviva has stated that the changes to their policy will not impact advisors or clients who have an existing policy. Nor will it affect those who have an application in process or ‘binding’ quotations placed before 11th March 2018. So there’s no need to panic.
Relevant life policies without critical illness
A relevant life policy on its own 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.
If employers or employees wish to add critical illness, then they can consider how comprehensive they would like that to be.
Is this just the start?
It is likely that other insurance providers may now introduce similar policies now there is more clarity on the issue. In the past, they steered away from it due to the complicated nature of the tax benefits. Some providers may not, believing that a critical illness policy on its own will actually provide more benefits to their customers.
What we hope is, this means there is more information surrounding relevant life for the benefit of consumers. 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 business life insurance.
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.