Life insurance

[Scotchpie]

Hello

I'm looking at various life insurance products. One financial advisor recommended splitting the insurance into three separate policies, life, critical illness, and mortgage cover in case of critical illness or death. However I'm starting to think that this may not be the most tax efficient way. Can all of these be paid for by the company? For example, can I really expect the company to pay mortgage cover if I have a non-work related critical illness?

Andrew

[Louisa@InTouch]

Hi Andrew,

Your company can pay for all of these however some may have benefit in kind implications, if the company is paying for a personal policy on your behalf.

As I would expect some of these policies such as the medical, critical illness or life, might have you or your family as beneficiaries and therefore BIK's would apply.

Whereas there are some policies such as death in service that don't have any BIK's.

The IFA might be suggesting three policies due to the benefit in kind (BIK) implications. But your IFA will be able to confirm this on each of the policies.

[northernladuk]

http://www.contractoruk.com/money/ho..._save_tax.html

Have a Google using the insurance you are after with contractor on the end. Plenty to read first.

[LondonManc]

I've done it privately so that there are no BIK complications; it also means that I'm covered whether I carry on trading or not.

[WordIsBond]

If you use a Relevant Life Plan, your company can pay for it with no BIK ramifications. Relevant Life Plans do have some restrictions, but in general, these are unlikely to affect a contractor just looking for cover to take care of your family.

Mortgage protection is simply life insurance that pays off the mortgage, with a declining payout over time as the mortgage balance decreases. I'm not enthusiastic about it, generally. Your mortgage balance may decrease but other needs (education of kids, for instance) may increase proportionally. I'd recommend just getting a RLP with enough to cover your mortgage plus whatever your family would need if the worst happens. That means instead of the FA selling you two products for life cover, he sells you one bigger one.

Most RLPs can be converted over to personal cover if you stop contracting. Given that, if the RLP provides the cover you want, you are wasting money (paying extra taxes) to get life insurance personally, rather than a RLP through your LtdCo. Just get an RLP and then convert it over if you decide that IR35 has made contracting not worth it anymore. Obviously, you should verify the convertibility before buying anything.

Aviva recently started offering Critical Illness cover within an RLP. It's controversial, other market players are saying it's not legit. They'll either stop saying that soon and start offering it, or Aviva will lose a case and end up looking really, really bad, or legislation/regulations clarifying the matter, one way or another, will come in. At this point, it seems a little risky to go that way.

The most tax efficient way to get the life cover you want is a Relevant Life Plan.

The most tax efficient way to get CI cover is an Aviva RLP, but that has some risk at this point, that it could be ruled illegal. No idea what happens then.

If you don't want to take a risk, the most tax efficient way to get CI depends on other factors. If your company pays for it, it is a BIK. If you are eligible for employment allowance and are paying yourself a salary of £11K, it will be marginally more expensive for the company to pay it. Your company would save 20% Corporation Tax, but you'll have to pay income tax at 20% on the BIK and your company will have to pay National Insurance on it. You would be better just buying it personally. On the other hand, if you are only taking a salary of £8K, it would be a little more tax efficient to have the company pay for it. You would save 20% CT, YourCo would have to pay NI, but you would have no tax or NI on the BIK as long as it didn't take you above the £11K personal allowance. If you have no other BIKs, you would have to decide if the tax savings is worth the hassle of dealing with BIKs. Your accountant should help you work out the different possibilities, I don't have time right now.