Small businesses often pay more for life insurance, but there are ways to reduce the cost.
Many of us will spend our working lives in a large or medium-sized company, and assume that, even if we do not have our own life insurance, then, at least, we can rely on a multiple of around four times our salary from our employer’s group scheme. But most employers are not large, medium or, even, small. And most are not even big enough to run a group life insurance scheme.
In fact, around 95% of Britain’s 4.9 million private businesses employ less than 10 people1. While 75% are sole proprietors, another 20% have up to only nine employees. The contribution of these microbusinesses to the UK economy has increased in recent years. The small company sector is viewed by many as the engine for recent growth and the new jobs that have propelled Britain’s economy ahead of its advanced world peers.
Microbusinesses alone employ 15% of Britain’s 29 million strong private-sector workforce – which amounts to around one million firms responsible for four million people2. Steve Casey of Ageas Protect observes that many companies are just too small to run a group life insurance scheme. Yet death is not confined to those who have retired and the elderly, with one in six people who died in England and Wales in 2013 under the age of 653.
“People running these businesses – from consultants that have set up as a one-man limited company to directors with a couple of employees – will often take out their own personal life insurance,” says Casey. “And they will be paying out of their income after tax or – even if they pay for it through the business – facing taxes on the premiums as a benefit in kind.”
The end result is that people working for microbusinesses have to pay for this most basic of provisions that employees in larger companies get for free. “That’s where relevant life insurance can be considered,” he adds.
Relevant life insurance is a type of policy that can be paid for by a business as part of an employee’s remuneration. Unlike a personal policy, HM Revenue and Customs (HMRC) view it as an allowable business expense, and so it can cost the business up to 49%4 less than a personal policy.
“It’s not just directors of microbusinesses who can benefit,” he explains. “It can make a neat little benefits package for their employees too.” Many relevant life insurance policies include additional benefits, such as medical support services.
“It only seems fair that they should get the same support from HMRC for including life insurance as part of their own and their employees’ remuneration, as many larger companies do,” he adds. And relevant life insurance is the type of policy that allows you to do exactly that.
1 Office for National Statistics, weekly provisional figures on deaths registered in England and Wales (February 2014).
2 The Department for Business Innovation and Skills, business population estimates (December 2013).
3 Office for National Statistics (July 2014).
4 Based on a higher rate tax payer as calculated by Ageas Protect.