What is a Relevant Life Plan?

This article explains what a Relevant Life Plan is, when it would be used and by whom. You’ll find this information useful if you’re studying for any of the CII AF1, AF2, AF5, R05 or R06 exams.

THIS ARTICLE IS RELEVANT TO EXAMINABLE TAX YEAR 2019/20.

From Past CII Business and Financial Planning Exams

This is a topic that can be tested in various CII exams; in the past, it has cropped up in the business planning papers, as well as in the advanced financial planning paper. An example was when one exam asked a question about a company setting up life cover on behalf of an employee for the benefit of their family.

If this is not done through a group life scheme because the company is too small, for example, then life cover set up in this way is known as relevant life cover.

What is a Relevant Life Plan?

A Relevant Life Plan (RLP) is basically term assurance offering a tax-efficient way of providing death in service benefits to employees; there has to be an employer/employee relationship so is not available to sole traders, partners or limited liability partnerships.

An RLP is an individual policy with the employer as the policyholder and the employee as the life insured.  The sum insured, like traditional death-in-service policies, is set up as a multiple of salary. Most providers offer up to 25 times remuneration for younger lives, with multiples reducing as age increases. The policy is then written under a discretionary trust, meaning money is paid quickly, without probate, to the correct people whilst also avoiding IHT.  On the death of the employee, the sum insured is paid to the trustees, and this, in turn, is paid to the named beneficiaries.

The premiums are paid for by the employer, and the benefit of that is that they are usually treated as a business expense by HMRC.

As far as the employee is concerned, the benefit paid won’t count towards the pension lifetime allowance, and premiums aren’t taxed as a benefit in kind either.

A Good Solution for Small Business and High Earners

All in all, RLPs are often a good solution for a small business wishing to provide life cover to their employees (and directors) without going to the full expense of operating a group life scheme, as well as for higher-earning individuals concerned with the pension lifetime allowance.

Grab the resources you need!

If you’re studying for your CII AF5 exam, and you’re feeling overwhelmed with worry, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF5 Taster Analysis now!

Alternatively, you can download the taster for AF1, AF2, R05 or R06 if one of those exams is causing you to fret.