Companies provide peace of mind to employees, with RLPs
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 J03, R05, AF2 or AF5 exams.
From Past J03 and AF5 Exams
A recent J03 paper tested RLPs, and they have also appeared in AF5 in the past, so in this article we look at companies 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 perhaps the company is too small, then life cover set up in this way is known as a Relevant Life Plan (or relevant life cover).
What is a Relevant Life Plan?
A Relevant Life Plan (RLP) is basically a term assurance plan 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 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 during employment, the sum insured is paid to the trustees and this in turn is paid to the named beneficiaries.
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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 on the employee 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.
Not for Shareholder Protection
One thing RLPs shouldn’t be used for, however, is shareholder protection, which was the question asked in the April 2017 J03 exam. One reason for this is that corporation tax relief on the premiums might not be granted.
Can you think of another reason?
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