Life insurance and the self-employed… how does that work?

Life insurance is one of those “I’ll put it on the to-do list and never get round to it” things for most self-employed people. As financial planner, Alan Cripps, says below – most of us either have it added a form of life insurance to our mortgage (if we’re lucky enough to be able to get a mortgage) or simply plump for the cheapest thing, not fully understanding what we’re getting. 

To try to better understand how life insurance for the self-employed community works, and what assistance there is, we caught up with Alan (who runs Cripps Financial Planning Ltd) to find out how he can help My Accountant Friend customers get a better, more tax-efficient deal.

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How do self-employed people usually go about getting life insurance?

Most self-employed people either don’t have life insurance or they got it arranged when they did their mortgage, so it covers the mortgage but not them. The other way they do it is that they look online and pick the cheapest, which obviously isn’t an entirely coherent way of doing things.

You talk about something called a relevant life plan. What does that mean?

A relevant life plan is insurance for an employee in case of death in service. It’s a plan paid into by the employer, which is designed to pay a lump sum if the employee dies or is diagnosed with a terminal illness.

What is different about what you’re offering here?

Well, aside from really understanding how life insurance for self-employed folks can be maximised, the main difference is that it’s a much more tax-efficient way of paying for it. Put simply: why not get the taxman to pay 20% of your premium?

How long has it been possible to put your life insurance through your tax accounts?

It has been possible ever since the changes to pensions back in 2006, but in truth there has been very little take up of it. I guess most people don’t even know it exists. A little education can go a long way, as people who regularly read this blog will most likely know.

Do you find that many people are surprised to find that this is possible?

Very surprised, and quite often pretty pleased! Working with your life insurance in this way can save you up to 49% of the overall cost, depending on how you take money out of the business.

So, what kind of savings can actually be made through a relevant life plan?

For a higher-rate taxpayer, the company director can save 49 per cent, by paying for their personal life insurance via a relevant life plan. For a basic-rate taxpayer the saving is still significant at around 36 per cent. The problem is that most company directors and even accountants have never heard of the plan. Therefore the uptake of the policy is very small compared to the number of people who could benefit and save.

How would My Accountant Friend customers and clients make use of Relevant Life and your services?

The best way is for them to contact me directly. While this is one excellent solution, there are plenty of others and we should give a rounded approach to your protection needs as many other things may be more important. They can either call me or email me – however they feel more comfortable. I should note that I’m happy to chat to MAF customers without any fee up front. If we feel we can work together, then we can discuss that kind of thing at a later date.

You can get in touch with Alan Cripps at Cripps Financial Planning by calling 07450 452589 or emailing alan@crippsfp.com. Remember to tell him that My Accountant Friend sent you. 

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