Critical Illness Cover
Critical illness cover is designed to provide financial protection upon diagnosis of a specific illness, medical condition or disability specified within the policy. In the event of a claim, a critical illness insurance policy will provide a tax-free lump sum (defined at the outset) to the policyholder who can then use these funds as they wish.
In light of the circumstances, the money received from critical illness cover is typically used to supplement income, pay off outstanding debts, cover financial outgoings or pay for any alterations needed to your home (wheelchair access, for example). A policy will only usually pay out once in the event of a claim during the term and then cease.
Relevant Life Plans
A Relevant Life Policy is similar to life insurance or a death in service benefit. Should an individual pass away during the length of the policy, a lump sum could be paid to their family or dependents. One of the main differences between the two policies is that a Relevant Life Policy is more tax-efficient, as well as being a major incentive or benefit for employed staff members.
A Relevant Life Plan is paid for by the business or company but covers the individuals they employ. This means that not only does the company offer this as an employee benefit but also it is also considered a legitimate business expense and is, therefore, tax-deductible.
So is it possible for a Relevant Life Plan to have an additional Critical Illness policy on top of it? It is possible to an extent.
Whilst a relevant life plan is an allowable business expense, Critical Illness is not. Therefore there is no tax saving value to putting the CIC policy through your business. Doing so therefore risks losing the tax-efficient nature of a Relevant Life policy. This could see HMRC seek to claw back taxes due on the policy, both on premiums and the payout, which would otherwise be tax-free as a standalone policy.
Talk to us about your best options and how we can ensure you are as tax efficient as you can be.