16 February 2011

Life Insurance in Small Businesses

One of my bugbears when running a small business previously was dealing with the bank! The bank manager never did anything helpful (like lending money on reasonable terms to help you grow the business)! Instead, at any opportunity he tried to sell us insurance of some sort - he even tried to sell car insurance at one point.

One type of insurance which was worth having, though, was life cover for the key people. In a small business if you lose a key person you are in trouble, so having a payout in the event that the worst happened is some compensation.

Since 2006 it has been possible to obtain this cover on better terms than previously. Before April 2006 such life insurance was covered by pensions legislation and potentially limited the "real" pension contributions. As a result, the life cover was often best handled by individuals who paid premiums out of taxed income.

But since that date, "Relevant Life Policies" have become available. With these, the company pays the premiums and, in most cases, these will be a business expense deductible against Corporation Tax.

So the message is - if you run a small business - or are a director - don't pay for life cover yourself - get the company to pay it and save tax!

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