Relevant life insurance can be an excellent choice for company directors. It is often overlooked when planning for the future in favour of more traditional personal life insurance. When planning for the future, it is crucial to look into all options to make the best decision for yourself, your family, your company and your finances.
This article will discuss the major considerations you should make when deciding whether to take out relevant life insurance, the benefits you can gain, and the potential next steps.
Consider Where You Are In Life – And Where You Want To Go
An excellent first step is to consider where you are in life currently. Are you at the beginning of your directorship career, or are you considering retirement soon? What major life plans and goals do you have for the future? The reasons to get life insurance are many, but typically it is taken out by the age of 35 or as part of the planning process for a significant life event.
If you plan to buy a home or start a family, then life insurance is a crucial step to take. If you were to die unexpectedly, the financial burden to your family left behind could be significant, particularly where young children or a large mortgage are involved. It can help to take some time to consider your plans for the next five, 10 and 20 years and see what kind of preparation you need to make in the event of your death.
Assess Your Family’s Needs
As the director of a company, you may be the primary breadwinner in your family. If this is the case, your death could cause huge financial problems for your family. It would help if you considered the extent of the debt your family collectively owes, such as mortgages, loans and credit cards. This can help to inform what level of relevant life insurance you may need.
You should also consider your children, their ages and the level of support they may need in the coming years. For instance, if you have school-aged children, you may need to consider the costs of schooling and university.
Understand The Insurance And Its Benefits
Relevant life insurance is an excellent alternative to personal life insurance. It is taken out by a company to cover a director or employee. It is worth noting that certain types of company are not eligible for relevant life insurance.
Personal life insurance is paid for using your disposable, post-tax income. This means that by taking out £100 of insurance, you will also have to earn the equivalent amount of tax on top of this. Relevant life insurance is taken out of your earnings before tax and National Insurance contributions, meaning that you can make significant savings on your tax bill. You can learn more about relevant life insurance from this helpful guide from Drewberry.
Talk To An Expert
When making any financial decision about the future, it is essential to get the right advice from financial professionals. This is just as true when taking out life insurance as it is when applying for a mortgage or planning your retirement. It is a good idea to discuss any potential insurance with the provider or an independent financial advisor to get an idea of whether the policy will be right for you and your family.
Review Your Current Pension Savings
If you are on track to exceed your lifetime pension allowance or are already exceeding your allowance, you can take out relevant life insurance without it impacting your allowance. This means that you can put the money aside for your insurance, and it will not trigger the significant taxation that can come from exceeding your lifetime pension allowance.
It is worth doing your research and reviewing your pension contributions to see if this may influence your decision. The lifetime pension allowance currently stands at £1,073,100 – anything over this, and you will have to pay additional tax.
Discuss The Future With Your Family
It is vital that you and your family discuss the future and any potential changes in circumstances. It would help if you let your family know that you are considering your options for relevant life insurance and discuss what this could mean for them in the future. Of course, you should use your judgement when talking about the idea with your children and ensure that they are old enough to understand the conversation.
Relevant life insurance is an excellent option for any company director. It is the ideal solution for high earning individuals as it allows you to save on tax and reduce the impact that a large pension pot can cause. It is essential to take the insurance out for the right reasons and carefully weigh your options as part of an overall future planning strategy.