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Ten reasons to fund life insurance through your limited company

05 - 08 - 2013

Everyone knows the benefits of life insurance but not everyone has the cover. You may think you are too young to start thinking about how you would cope financially if you became terminally ill or how your family would cope financially in the event of your death, but you can never predict what is around the corner and it is worth remembering that the younger you are, the cheaper your cover could be. Taking out life insurance may be lost on never-ending list of things to do or, perhaps, the cost of cover is preventing you from buying a policy. Whatever your reason for putting it off, if you are a limited company director, you may want to take action now as you could make savings by putting the cost of cover through your business.

Below are ten reasons why you should consider funding your life insurance policy through your limited company:

1. No need to consider income tax or benefit-in-kind
For the first time, contractors running their own limited company can fund life insurance through their businesses without having to consider income tax or benefit-in-kind.

 

2.   May be treated as a business expense
In some cases, it is possible for contractors to have their life insurance treated as a business expense.

 

3.  Costs less than mainstream policies
By funding life insurance through a limited company rather than paying policies from a personal account, contractors can save significant sums of money.

 

4. No inheritance tax to pay
In the past, contractors had to cover the cost of life insurance themselves or take out ‘Keyman’ insurance. However, as Keyman cover belongs to a contractor’s company, dependents can be taxed on the funds they receive. These days, contractors can get ‘Relevant Life’ cover - a new insurance product designed especially for small companies. Unlike Keyman insurance, the funds received by dependents through Relevant Life cover is not liable for inheritance tax as it is payable through a discretionary fund.

 

5. Does not affect your pension allowances
Relevant life cover works like the old pension-term assurance but, crucially, does not affect lifetime or annual pension allowances.

 

6. Policies can be tailored to cover a spouse employed by the company
If a contractor has a partner who is employed by the company, he can tailor the policies to cover both him and his partner individually as long as his partner receives some form of remuneration for the work they do.

 

7. Can cover directors for up to fifteen times their total earnings
Business life insurance covers the director of the company or any partner employed by the business for up to fifteen times their total earnings (salary and dividends) from the company.

 

8. Lump sum payment
In the event of his death up to the age of 75, a contractor’s dependents will receive a lump sum payment.

 

9. The policy can be transferred to a new employer if a contractor goes permanent
If a contractor decides to stop contracting to take a permanent job, he can still be covered by his policy by transferring it to his new employer. As the cover is written in trust, the money is protected from any liabilities the new employer has and this also means it is easy to transfer. Additionally, if a contractor decides to pay for their policy personally, he can transfer the policy to another employer if he changes jobs and if he decides to go contracting again, he can simply transfer it to his new limited company.

 

10. Only medically underwritten once
As you age, health issues are more likely to crop up, but with this cover you do not have to worry about being medically underwritten again – meaning that you can afford to be covered all your working life.

 

For more information about funding life insurance through your limited company, please do not hesitate to contact Foremans LLP on 01244 625 500.

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01244 625 500

Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage