A Personal Finance Blog for Malaysian: Relevant Life Cover: How Much Cost-Effective Is It?

Sunday, May 19, 2013

Relevant Life Cover: How Much Cost-Effective Is It?

A relevant life insurance policy is a fairly new kind of insurance in the market, which has become quite popular among employers of limited companies who want to set up a death in service benefit for the employees.

The tax advantages offered by the relevant life providers have played a significant role behind the success of this kind of cover. However, as an owner of a business, if you want to secure the benefits of relevant life insurance then you must go through its basic features in detail.

Features of Relevant Life Plan
• The benefits of this plan can be obtained by owners of limited companies with directors
• It is a death-in-service benefit meant for an employee with his family as the beneficiary
• It is a single life cover
• It is particularly suitable for small companies that do not have the required number of employees to qualify for a registered group scheme
• The client will not be covered by the policy as soon as he completes 75 years
• The policy generally does not have a critical illness cover attached to it
• The payouts are made through a discretionary trust
• High-earning individuals who do not want to include the life insurance benefits in their annual pension funds can keep the pension allowances and the relevant life cover benefits separate from each other.

As already mentioned above, the tax benefits attached to the relevant life cover are one of the most important factors behind the popularity of the cover. Let us learn more about them. A non-relevant life policy is generally subject to serious tax restrictions and National Insurance contributions that make them more expensive when compared to a relevant life plan.

The business owner (if he chooses a relevant life cover) receives substantial tax benefits as the premiums paid are considered to be part of the trading expenses. Additionally, the policy is not subject to either the Employee or the Employer National Insurance Contribution.

Things to watch out for 

This policy should not really be an option for you if you are diagnosed with a critical illness. The plan provides only life and terminal illness covers. In case of a terminal illness, you will not really get any benefit during the last one year of the scheme. The cover might expire once the employee decides to quit the organization of the business owner who is funding the relevant life policy benefits.

Here, however, the plan might as well continue without the requirement of further underwriting, if the new employer agrees to pay for the benefit. The employee who is covered by the policy can himself apply for the continuation of the same. But it is advisable that the employee starts working on these formalities at least 30 days prior to his leaving the company. How should you choose a policy? Please go through the websites of at least 4-5 insurance carriers in order to find out about the facilities provided by them in detail. Make use of the relevant life calculator in order to find out the differences of gross costs involved in an ordinary life insurance policy and relevant life plan. This can be done by entering data like the employee income tax rate, the employee’s highest rate of tax, employee national insurance rate, etc. Please consult a financial expert if required.

Author Bio: Sam Payn is a passionate blogger, focusing primarily on financial matters like insurance, investment and stocks.

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