If you are the director of a company and you have been paying premium for life cover on your own, you also have the option of arranging life cover in an affordable and tax-exempt way. Want to know more? Please read on.

Company Director Life Insurance: How it works

When you are working as a company director and you have a life insurance cover in place, you are probably making payment for it in either of the two modes given below:

  • Via the company account
  • From your post-tax earnings

In both cases, you are liable for tax payment irrespective of the fact you are making the premium payments from the money you make every month or because you are financially responsible for a P11D benefit which you have been receiving in kind.

Company Director Life Insurance

Now, a company director life insurance policy can help you save money which you would have otherwise spent on tax payments.

If you become eligible for a company director life policy after meeting particular criteria, then you can easily breathe a sigh of relief. The most attractive part of this kind of a policy is that the expenses of the cover are borne by your employer and not you. Moreover, you will not be held financially responsible for the P11D benefit. The premium that your employer is paying against the cover offered to you is treated as an allowable expenditure when it comes to corporation tax payments for the employer.

If the company director goes according to this plan, the net expenses for setting up the plan is considerably less than making the payment for a conventional life insurance plan through the company account.

This variation is still higher if the premium for a company director policy is paid from post tax earnings and especially for taxpayers who are paying it at a substantial rate.

As a result of the laws and statutes encompassing these policies, it is crucial to make sure that the prerequisites are fulfilled since this might have a big influence on whether tax exemption will be offered or not.

The basics of a Company Director Life Insurance Policy

A company director life policy is obviously a single life cover which an employer arranges for a director of the company and it also works as a death in service benefit cover.

These covers are appropriately planned for employees with high income and company directors who are in need of insurance coverage on top of the group insurance scheme offered by their employer.

Company director life cover is also suitable for businesses and companies that don’t have a significant number of employees and where group life insurance is not relevant.

If you are going for this kind of a cover, you need to keep in mind that you will not be getting any income protection benefit, critical illness cover, or any form of waiver from it. Furthermore, the plan remains valid till your 75th birthday. The most attractive feature of this cover is the tax exemption which you otherwise would not have received if you had been paying on your own.

Directors of small businesses can also become eligible for this cover and this is quite an exciting offer for them. They can cover themselves in a more affordable manner.

How can you benefit from company director life insurance?

If you are working as a company director, and your employer is responsibly making the premium payments on your behalf, it is not considered as a benefit in kind. Instead, it is regarded as a permissible deduction and it implies:

  • The premium payments are not included while the lifetime allowance or the yearly allowances are being calculated.
  • The premium payments for the cover will be considered as a business expenditure. In addition, the employer will also be getting some exemption under the Corporation Tax rules since the payments in all likelihood will be treated as a permissible deduction for the employer.
  • The employee does not have any financial responsibility as far as income tax payments are concerned.
  • Neither the employee nor the employer is financially responsible for National Insurance premium payments
  • The beneficiaries whose names have been proposed for the receipt of the benefit or claim amount can receive it in a tax-exempt manner

Why getting Company Director Life Cover is important for high-income individuals/directors

  1. If you pass away unexpectedly, then the co-directors face no economic problems in acquiring your shares. The company director life insurance policy has to be written in trust of the co-directors. Subsequently, they will be able to purchase the shares and your near and dear ones will be financially benefited and secure. In this way, the cover offers financial assistance to the other directors to take over the shares of a director if he passes away all of a sudden.
  2. The majority of people obtain life cover to finance their mortgage repayment and company director life cover can also come in handy in this regard. However, the cover has to be set at four or five times of your yearly income as a minimum besides looking after the mortgage.
  3. You have to take into consideration the lifestyle of your family. Your family will require financial support when you are not there. It is quite natural that your family features a high standard of living if you have a substantial level of income. This will come to an end when you die. It is crucial to ensure that adequate financial support is provided to your family members.

So, life insurance for company director can be helpful in these ways. Your personal financial situation will decide whether you need this cover or not. The nature of your shareholding in the company is also an important factor. If you participate in risky and adventurous pursuits or if your health is not in good shape, then it might have an adverse effect on your qualifying for the policy and also the rate of premium. Talking to an insurance professional might help in this regard.

Damian loves to blog and all these years he has covered a range of topics related to insurance, in particular family income benefit insurance products.

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