Ask the Expert: Can I get life insurance for key staff?

Lisa Tuck on life insurance

Lisa Tuck on life insurance - Credit: Smith and Pinching/Getty

This week our reader wants to know if a company can get life insurance for key staff. 

Reader question:

My husband and I have a small company – we are the directors. We employ just two people plus ourselves.

We’d like to include some kind of life insurance for ourselves and one of our staff (who has been with us for a long time) but don’t want to set up a group scheme for so few of us.

Can the company just pay for our individual policies?

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Lisa Tuck of Smith & Pinching responds: 

If your company were to pay for individual policies for yourselves and your employee, it is likely that the premiums might be seen as a benefit for P11D purposes, and you would be taxed accordingly.

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However, there is a specific type of business insurance that allows you to cover employees, including directors, without a group scheme.

Relevant life cover will provide a lump sum pay-out to the family or dependants of the person covered if he or she should die during the policy term. It may also include terminal illness cover.

There may be limits on the amount of cover available dependant on age and remuneration, and there will be a list of definitions and exclusions relating to the conditions covered.

The policy is owned by the business and premiums paid by the business, but as long as the policy can be considered as “wholly and exclusively for the purposes of the business”, premiums won’t normally be seen as a taxable benefit to the employee.

Premiums and any benefit paid are eligible for relief from Income Tax, Corporation Tax and National Insurance.

The policy must be set up in a relevant policy trust with the employee’s family or dependants named as beneficiaries.

The benefits paid are not usually counted as part of the deceased person’s estate if written in trust, so will normally be free of Inheritance Tax.

There may be different types of trust available, and there are potential tax charges that arise within the Trust itself, so advice should be sought before proceeding.

This is a marketing communication. Any opinions expressed in this article do not constitute advice.

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