For financial adviser use only. Relevant Life Cover. Adviser guide

Transcription

1 For financial adviser use only Relevant Life Cover Adviser guide

2 What is Relevant Life Cover? This is a tax-efficient life insurance policy allowing businesses to offer death-in-service benefits for their employees (including salaried directors). The cover pays out a tax-free lump sum if the person insured dies (or is diagnosed with a terminal illness). Benefits over a group scheme Relevant Life Cover is arranged on an individual basis with the employer as the policy owner, and the employee as the person insured. The employer pays for the policy and unlike group schemes; HM Revenue & Customs usually consider the premiums a business expense. What s more, the proceeds won t count towards the employee s annual or lifetime pension allowance. Who might want to take out Relevant Life Cover? Small businesses wanting to offer life insurance to their key people, but might struggle to cover the costs associated with group schemes. High-earning employees who may exceed their personal pension lifetime allowance. Registered group life schemes are included in pension legislation, meaning any proceeds are added to the employee s pension funds and may cause them to exceed their maximum lifetime allowance. Members of group life schemes who want to top up their benefits. Some group life schemes are very restrictive. Relevant Life Cover can be used to provide an additional benefit in a tax-efficient way. The maximum lifetime allowance is 1.25m during the 2015/2016 tax year. Anything over this limit is taxed at 55%. Some high earners may have protected the amount in excess of the lifetime allowance limit to avoid the charge. But this could mean they can t make any further contributions to their pension (including becoming a member of a registered death-in-service scheme). Relevant Life Cover could be an alternative way to provide life cover for employees without affecting their protected lifetime allowance limit. Why choose LV= Our experienced team are here to support you and your business portfolio; whether it s answering technical questions, pre-sales advice or marketing ideas and support. We also offer: Free business legal advice for your clients Personal advice line for all policy owners and people insured, offering access to lawyers, health and wellbeing advice, and counselling Expert sales support and advice, helping you get started and tackle those trickier cases Dedicated Business Protection underwriters each application will be treated with the highest priority Online tools and easy-to-understand client literature to support your recommendation 2

3 How does Relevant Life Cover work? Employer insures employee Relevant Life Cover is only available to employees, including salaried directors. Relevant Life Cover is not available to sole traders, partners or members of a limited liability partnership. What type of trust is needed for Relevant Life Cover? A discretionary trust should be set up alongside a Relevant Life Cover policy, as it will name the potential beneficiaries. These could include a spouse, children or grandchildren, or specific individuals, who are known as the discretionary beneficiaries. Relevant Life Cover is written in trust This ensures the money is paid to the correct beneficiaries quickly and the proceeds are tax-efficient. Employee dies (or is diagnosed with a terminal illness) The next of kin (or beneficiaries) make a claim. LV= pay the proceeds to the trustees The trustees are responsible for looking after the contents of the trust, on behalf of the beneficiaries. Inheritance tax arrangements Although the proceeds are generally free from inheritance tax, there are some situations where charges could be applied: A periodic charge may apply on each 10th anniversary from the date the trust is created An exit charge may apply when the proceeds are paid Any charges are based on the value of the trust assets at the time. However, they are unlikely to apply if the proceeds are paid at claim (charges are usually applied if the proceeds continue to be held in trust after the claim has been paid to the trustees, but not the beneficiaries). Trustees pay the beneficiaries The proceeds are paid and because the policy was written in trust, inheritance tax doesn t apply. Can discretionary trusts be used in Scotland? Yes: Scots law will apply to the trust if the address of the principle employer is in Scotland when the trust is created. For more information on trusts and Relevant Life Cover, including frequently asked questions, visit Relevant Life Cover Adviser guide 3

4 Relevant Life Cover from LV= How much cover can your clients have? There is no minimum amount of cover (only a minimum premium of 5 a month). The maximum amount of cover available is 10 million. If your client wants 1 million of cover or more; they might have to complete a financial questionnaire (available to download at LV.com/adviser). Just like group life insurance schemes, many employers choose to set the amount of cover as a multiple of salary. We suggest your client selects an amount of cover based on age and yearly earnings, subject to the following maximum limits: years old Up to 25 X remuneration years old Up to 20 X remuneration years old Up to 15 X remuneration If the amount of cover your client chooses isn t within the limits set out above, please let us know. The amount of cover available, and the limits that apply, are explained in the Relevant Life Cover policy summary. Options Your client can choose: The amount of cover The term Whether the cover is level or inflation-linked Business Protection Team All cases you send to us are important, but we understand Business Protection requires specialist support. So we ll offer you our dedicated team of underwriters for each submitted LV= Business Protection case. The team will: 1. Offer pre-sales support, meaning right at the start of the sales process you can clarify any questions you or your client may have. This can significantly speed up the application and ensure your client is covered quickly. 2. Operate a piecemeal underwriting service and action each piece of evidence as and when it arrives. We ll aim to review cases on the same day (or within 24 hours) and update you throughout the application process. 3. Go that extra mile to make sure your client gets the cover they need, as quickly as possible. For example, if your client needs to see a medical professional but can t take time off work to see their usual GP, we could send a nurse to visit them at home. Technical support Writing Relevant Life Cover can be complicated, but our experienced team can talk you through the application process, advising you on the best way to write the cover and which legal documents can support you along the way. You can get a quote for Relevant Life Cover at the portals or at LV.com/adviser Webinars and sales training Our webinar training can help you expand your business, network and find new opportunities. You can also use our interactive tools and calculators to work out the amount of cover your client needs. Marketing We ve developed a range of jargon-free sales aids and easy-to-understand client brochures to help you effectively introduce Relevant Life Cover to your clients. 4

5 Business support line and more Once your client takes out LV= Relevant Life Cover, they ll have access to our free 24/7 helplines, offering access to medical professionals, counsellors and legal experts. Business legal advice line We ve partnered with a firm of business solicitors to offer your clients free commercial law advice. This service is available to all business owners who take out LV= Business Protection and offers advice on a number of commercial issues, including; HR legislation Health and safety issues Commercial risks Personal advice line We also offer a free personal line for all policy owners, people insured and any remaining employees not covered by a LV= Relevant Life Cover. The advice offered includes: Access to lawyers and solicitors Health and wellbeing advice Counselling Advice on contracts Access to medical professionals Legal advice from solicitors Counselling from qualified counsellors Benefit to the employee (life insured) Advice on specific illnesses or injury and what to expect. GPs and consultants don t always have the time to explain everything in detail, so the helpline can be used to explore diagnosed conditions (and treatments) further. The helpline is open 24/7, supplementing out of hours GP services. The helpline can be used for advice on any area of UK law, including property-related issues, will and probate, as well as family legislation. Everyone needs legal advice at some point in their lives, and your client s employees can get it for free with LV=. Staff can speak to a counsellor aroundthe-clock, at a time that suits them. They can talk about anything they re worried about, including work stress or anxiety, relationship or family difficulties, emotional problems or bereavement. Benefit to business owner If an employee is sick, the doctors and nurses can help your client understand the illness, whether the employee is expect to recover and if so, how long it might take before they re back to work. This advice can help your client plan for the future. Advice from solicitors specialising in business and commercial law, including: HR, business ownership, health and safety and contracts. This advice is available as soon as the policy starts not just at claim. Private counselling sessions typically cost an hour, but with LV=, your clients can offer their staff this service at no additional cost. The helplines can be used as soon as the policy starts (not just at claim) and are available 24/7, every day of the year Relevant Life Cover Adviser guide 5

6 Relevant Life Cover: an example for a high earner Andy Taylor is employed as a managing director of a property development company and has 1m saved in his pension pot. He s 44 and married to Sally, and together they have three young children. He s very active and enjoys playing 5-a-side football and running around looking after his children. Whilst Andy is healthy, he worries about what would happen to Sally and the children financially if something happened to him. Andy speaks to his financial adviser about his concerns and the adviser recommends his company takes out LV= Relevant Life Cover with a 800,000 amount of cover written trust, nominating Sally as a beneficiary. If Andy died (or was diagnosed with a terminal illness) during the term, the trustees of his Relevant Life Cover would receive 800,000. This would then be paid, tax-free to Sally, giving her enough money to pay off the remaining mortgage on the family home and hopefully live free from financial worry. During the term, Andy dies and Sally makes a claim under the Relevant Life Cover policy. The 800,000 claim is paid to Sally, via the trustees. Although Andy had a substantial pension pot of 1million, the 800,000 payment won t count towards his personal allowance. This means his family will receive all the money they were entitled to, without any excess taxed at 55%. Cover: 800,000 Employer pays the monthly premium owning the policy Andy dies during the term of the plan Sally makes a successful claim on his LV= Relevant Life Cover The trustees are paid 800,000 The trustees pay Sally 800,000, tax-free The lump sum doesn t count towards Andy s pension pot, so his lifetime allowance is still below the limit 6

7 Relevant Life Cover: an example for a small business Amanda Wilkins is a partner of a small graphic design consultancy, AW Design. Amanda works full-time, and employs two designers; who have both been at the company for a number of years. Amanda is proud of the business she s built and values the roles that Emma and Leo have played. Amanda feels that she should provide life cover for herself and her employees and speaks to her financial adviser who suggests that she considers LV= Relevant Life Cover for all three of them. The adviser also mentions that setting up a group life scheme would not be appropriate due to the administration costs involved and size of her business. Amanda Emma Leo Monthly premium Employee National Insurance Contribution N/A N/A N/A Income Tax N/A N/A N/A Total company gross cost All polices are written in trust and Amanda, Emma and Leo each name their beneficiaries (their next of kin). If one of them died whilst working at AW Design Ltd, the claim would be paid to the trustees, before the tax-free proceeds are paid to the beneficiaries. Less Corporation Tax (assuming 20%) Tax-adjusted total premium This is how the costs would work, assuming that the premiums qualify as an allowable business expense. These figures are for illustrative purposes only. Tax calculations are based on 2015/2016 tax rules and may change in the future. The information assumes that the same rate of Income Tax/ National Insurance applies to the whole of the premium. It may be affected by individual circumstances. Relevant Life Cover Adviser guide 7

8 Protection Income Protection Critical Illness Life Unemployment Liverpool Victoria Friendly Society Limited: County Gates, Bournemouth BH1 2NF LV= and Liverpool Victoria are registered trademarks of Liverpool Victoria Friendly Society Limited (LVFS) and LV= and LV= Liverpool Victoria are trading styles of the Liverpool Victoria group of companies. LVFS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number Registered address: County Gates, Bournemouth BH1 2NF. Tel: /2015