Relevant life cover is a tax-efficient form of life cover. It’s used by smaller employers looking to provide ‘death in service’ benefits who would not have enough employees for a group scheme, or directors requiring life cover, which doesn’t impact their pension lifetime allowance.
Recently, Aviva caused a storm in the market by introducing the first relevant life cover with critical illness cover attached to it. Heralded as a game changer for the business protection market, Legal & General and Royal London have since taken objections to the regulator, believing the cover is not allowable within HMRC tax treatment of relevant life plans. The spat rumbles on, so watch this space.
The gap
As with individual life cover, there is a huge difference in the number of businesses that should have business protection than have actually taken out cover. Legal & General research found the business protection ‘gap’ to be £1.35trn.
While research from LV= showed 29 per cent of businesses don’t think they need protection, despite almost a quarter of firms with cover having made a claim, stating it can be difficult to convince clients about the need and value of protection.
Victoria Slade, independent protection expert at adviser firm Drewberry said: “the complexity of this type of cover, coupled with the growth in limited companies and partnerships, have resulted in huge risks to these company set ups, as they remain uninsured and vulnerable being exposed to some key risks.
Often, the reason businesses haven’t considered or arranged cover is because they either hadn’t considered such an eventuality, or, they’re simply ‘too busy’ to arrange getting it into place.”
Dougy Grant, protection director at Aegon UK added: “Business protection should be a key consideration for small to medium sized businesses. Without it, it’s incredibly difficult to ensure continuity or implement succession plans should anything happen to the business owners or key employees.
“Within the industry we know it’s a problem but inertia and reluctance to discuss this sensitive topic mean far too few business have put plans in place.”
The opportunity
With the number of small businesses increasing year-on-year, there is a clear opportunity for advisers to grow their business protection offering.
Roy McLoughlin at Master Adviser believes the increased number of LLPs (limited liability partnerships) in particular, and the different requirements they have in terms of tax structure, offers a real opportunity for advisers.
“It’s a good idea to foster relationships with accountants and lawyers. They want to talk to their clients about succession planning and many of the solutions are insurance based” he said.
“Also when you look at ‘Articles of Association’ documents, how many of them mention death? Not as many as you think. So it’s good for an adviser to take the opportunity to review them.”
