Life Insurance as a contractor

[DallasDad]

The trouble with Life Insurance, I find, is that you're never able to claim on it....

+1
Before I took VR from HP I was worth a hell of a lot more dead to swmbo than I am alive today.
So she missed an opportunity bless her............

[TheFaQQer]

I'm not over 50. I pay £20/month for my life assurance. Adding critical illness more than doubled it.

Depending on the level of cover, you may find that IPSE Futures is competitive - I'm waiting for a final quotation but in the meantime I pay £17.50 a month for my cover until they complete the medical review.

At which point, I'm fairly certain it will rocket and I'll cancel the policy

[WordIsBond]

Relevant Life cover does not cover critical illness, only payment on death.

This is consistent with everything I've read everywhere.

Not anymore. Only recently this has changed and you can also include Critical Illness as well as Life. It's taken a while for this to happen but it's arrived. Not all providers are offering it.

To be clear, you are saying that a Relevant Life plan CAN include critical illness cover and be an employer-paid, tax-free benefit. Is that correct?

If so, how do I know you aren't just a salesman saying something that will give you a sale? I'm not trying to be rude or insulting. But I'm not seeing anyone saying this anywhere else, and everything I've ever read about RLPs is that they are tax efficient but carefully defined, and that careful definition includes only payment upon death. So who is offering this, and where is the legal stuff (legislation and/or regulations) that says this is ok? Why isn't this being talked up? Where's the articles on this on this or other contractor sites, such as Contractor Weekly or Contractor Calculator? Seems like this should be really good news if it is real.

CI cover is something many contractors should be considering, especially if it can be done tax-efficiently. But I'd be interested in something a little more substantive than a quick comment on a contractors' forumn.

[mudskipper]

This is consistent with everything I've read everywhere.

To be clear, you are saying that a Relevant Life plan CAN include critical illness cover and be an employer-paid, tax-free benefit. Is that correct?

If so, how do I know you aren't just a salesman saying something that will give you a sale? I'm not trying to be rude or insulting. But I'm not seeing anyone saying this anywhere else, and everything I've ever read about RLPs is that they are tax efficient but carefully defined, and that careful definition includes only payment upon death. So who is offering this, and where is the legal stuff (legislation and/or regulations) that says this is ok? Why isn't this being talked up? Where's the articles on this on this or other contractor sites, such as Contractor Weekly or Contractor Calculator? Seems like this should be really good news if it is real.

CI cover is something many contractors should be considering, especially if it can be done tax-efficiently. But I'd be interested in something a little more substantive than a quick comment on a contractors' forumn.

Quick google turns up this

» Aviva launches relevant life cover with critical illness

Louise Colley, managing director of protection at Aviva, said: “Historically, relevant life policies have tended to only include a death benefit and terminal illness benefit, so I’m delighted that following extensive research and advice from external legal counsel, we are able to offer a fully-compliant critical illness benefit on our new relevant life insurance."

It is sounding very like a "scheme". I wonder who is liable for the tax if it is challenged.

Edit: Details of the interpretation that allows it can be found here http://www.aviva.co.uk/adviser/produ...l/al18012c.pdf


"We make every effort to ensure that our comments are accurate. They are based on Aviva's interpretation of current law and legislation, HM Revenue & Customs' (HMRC) practice at the date of this publication. Both the law and HMRC practice will change from time to time and our interpretation may be subject to challenge by HMRC or other regulatory body."

[mudskipper]

Looks like there's some disagreement on the interpretation

Rules for critical illness insurance confuses providers | AccountingWEB

[WordIsBond]

Thanks for the research. The world moves fast. I was looking at this a month ago and saw nothing, so assumed there was nothing out there, and now this comes up. At least we know our friend here isn't making stuff up, but there seems doubt whether he has sound information.

This part bothers me a lot:

“Relevant Life with critical illness is a breakthrough. Previously, a number of insurers had investigated the potential for such a plan but had been unable to navigate the onerous requirements of legislation.
“Aviva’s legal advisers have succeeded where others failed and this plan is capable of creating a whole new target audience for critical illness.”

If the justification that Aviva gave is sound, then it seems to me like anyone could have figured this out.

I wonder who is liable for the tax if it is challenged.

I think we know the answer to that. They've covered themselves sufficiently to say, "Hey, we tried to get it right but we warned you it was based on our interpretation which may be subject to challenge."

The other question I'd have is if it is invalidated, does the RLP become taxable in whole, or only the critical illness part of the cover? If the former, there's really not that much risk in it -- you end up with a BIK, but if you want the cover anyway that's not a horrible outcome, especially if you are only paying salary to £8K anyway. If the latter, then you risk your tax efficiency on your life cover as well.

[Freelancer Financials]

This is consistent with everything I've read everywhere.

To be clear, you are saying that a Relevant Life plan CAN include critical illness cover and be an employer-paid, tax-free benefit. Is that correct?

If so, how do I know you aren't just a salesman saying something that will give you a sale? I'm not trying to be rude or insulting. But I'm not seeing anyone saying this anywhere else, and everything I've ever read about RLPs is that they are tax efficient but carefully defined, and that careful definition includes only payment upon death. So who is offering this, and where is the legal stuff (legislation and/or regulations) that says this is ok? Why isn't this being talked up? Where's the articles on this on this or other contractor sites, such as Contractor Weekly or Contractor Calculator? Seems like this should be really good news if it is real.

CI cover is something many contractors should be considering, especially if it can be done tax-efficiently. But I'd be interested in something a little more substantive than a quick comment on a contractors' forumn.

Firstly, I would never come onto this forum and risk our reputation by quoting something that would just give me sale. As I said, this is a new product that has been launched recently by AVIVA. It was also announced here: » Aviva launches relevant life cover with critical illness» Aviva launches relevant life cover with critical illness

Unless you're a mortgage broker or IFA, it's unlikely you would have received any news on this subject. When Relevant Life was first introduced it was only one provider doing it until the others joined in too. I suspect the same will happen again over the coming months.

[WordIsBond]

Firstly, I would never come onto this forum and risk our reputation by quoting something that would just give me sale.

Fair enough. I didn't really think you'd be that stupid. So count me as a potential client, and not just for me but for several employees as well. I'd just phone you and ask this stuff, but the answers are probably relevant to a lot of people, so I'll put it here.

Please explain to me what happens if I go with this new Aviva plan and HMRC successfully challenges it.
1) Does the whole thing (CI and Life cover) become a taxable benefit in kind?
2) Does the Critical Illness component become invalidated with all premiums attributable to it refunded?
3) Does the Life cover remain a tax-free Relevant Life Plan, but the Critical Illness component continues, but as a taxable benefit in kind?

Are the two (CI and Life cover) written as separate policies, or as a single policy?

Anyone in our position obviously needs to be considering what you do if bad stuff happens, so CI cover is something we have to be thinking about. But if I'm going to do something with potentially significant tax implications for me AND my employees, I need to know what happens. I can't just say, "Oh, this is fine," and then have them get hit with a whopping tax bill two years from now if HMRC invalidates it, and say, "Oh, sorry guys." And I can't give them CI cover and then have it drop out from under them without warning, either (option 2 above). So I at least need to warn them about what could happen, and hopefully have some way to assess the risk.

Having Aviva, who is selling it, say, "Sure, it's fine," when others are saying it isn't, doesn't necessarily give great confidence. And the HMRC response on that AccountingWeb article was hardly reassuring, calling it a "Mickey Mouse product".

Obligatory HMRC gripe: for them to call it a Mickey Mouse product is unprofessional, anyway. But how are businesses to plan, and to decide which cover is best to provide for their employees, if the tax enforcement authority can't be bothered to answer whether something is legitimate within the tax code or not?

[Freelancer Financials]

Fair enough. I didn't really think you'd be that stupid. So count me as a potential client, and not just for me but for several employees as well. I'd just phone you and ask this stuff, but the answers are probably relevant to a lot of people, so I'll put it here.

Please explain to me what happens if I go with this new Aviva plan and HMRC successfully challenges it.
1) Does the whole thing (CI and Life cover) become a taxable benefit in kind?
2) Does the Critical Illness component become invalidated with all premiums attributable to it refunded?
3) Does the Life cover remain a tax-free Relevant Life Plan, but the Critical Illness component continues, but as a taxable benefit in kind?

Are the two (CI and Life cover) written as separate policies, or as a single policy?

Anyone in our position obviously needs to be considering what you do if bad stuff happens, so CI cover is something we have to be thinking about. But if I'm going to do something with potentially significant tax implications for me AND my employees, I need to know what happens. I can't just say, "Oh, this is fine," and then have them get hit with a whopping tax bill two years from now if HMRC invalidates it, and say, "Oh, sorry guys." And I can't give them CI cover and then have it drop out from under them without warning, either (option 2 above). So I at least need to warn them about what could happen, and hopefully have some way to assess the risk.

Having Aviva, who is selling it, say, "Sure, it's fine," when others are saying it isn't, doesn't necessarily give great confidence. And the HMRC response on that AccountingWeb article was hardly reassuring, calling it a "Mickey Mouse product".

Obligatory HMRC gripe: for them to call it a Mickey Mouse product is unprofessional, anyway. But how are businesses to plan, and to decide which cover is best to provide for their employees, if the tax enforcement authority can't be bothered to answer whether something is legitimate within the tax code or not?

You've made some valid points. I'm not Queens council or a legal tax specialist so don't have the authority to respond without guidance from Aviva and other third parties. Essentially we are Mortgage and Protection brokers. But I agree that it would be great to get further clarification from HMRC so that it's not challenged in the future.

What I can tell you right now is that L&G are also seriously looking to follow Aviva's steps. They're just waiting for some further clarification before they proceed. At then end of the day it's all about interpretation. Aviva have stated to us clearly that it has liaised with HMRC and taken legal advice from a QC who confirmed that the product was compliant with the relevant legislation and therefore qualified as a relevant life plan. So they firmly believe that under the current tax legislation these plans can include critical illness benefit (it is the same legislation that lets providers include a terminal illness benefit).

However, I will raise your points with Aviva and get back to you shortly.

[Freelancer Financials]

Updated: Insurers warn that Aviva's Relevant Life/CI plan breaches tax rules, HMRC denies 'Mickey Mouse' comment

You may also want to read this article:

Updated: Insurers warn that Aviva's Relevant Life/CI plan breaches tax rules, HMRC denies 'Mickey Mouse' comment - COVER Magazine - Protection and health insurance industry news, commentary and analysis

It's all about interpretation. But this is exactly what happened when Relevant Life was first introduced. You still get a number accountants (those that do not specialise in contractors) questioning whether Relevant Life is legit?

Hopefully I will have some more information to answer your specific questions soon.