Has your life assurance cover been arranged in the most efficient manner? For employees or directors of companies, it can be more beneficial for the company to fund your life assurance policy rather than you paying for it out of your taxed income. This case study demonstrates how significant tax and National Insurance savings can be made by managing your life assurance efficiently.


Life Assurance

The problem:  Paying for life assurance after tax income
The benefit:  Life assurance premiums become a business expense
Suitable for:  Directors and employees

John was a shareholding director of his own limited company who met AEON staff in the 2010/2011 tax year. At that time he paid £200 each month for his life assurance out of his post tax salary. What John had not considered was that he had paid 40% income tax plus an additional 1% National Insurance (NI) on the higher part of his salary. In addition, his limited company paid employers’ NI at the rate of 12.8%.

By paying the premiums personally, John had to earn £338.98 gross in order to receive the £200 net to pay for his life cover. His company would also have paid £43.39 in NI, taking the total cost to £382.37.  However, there was some good news because both his salary and NI were allowable deductions for Corporation Tax, making the total cost to John and his company a mere £302.07 per month!

When AEON looked at his circumstances, we established that it was possible for his business to apply for a special type of death-in-service arrangement providing John with the same level of benefit for the same monthly premium of £200. But with no income tax or National Insurance to pay. Furthermore, the premiums were allowable deductions against Corporation Tax, saving a further £42 per month, resulting in a net cost of £158.

This represents a monthly saving of £144.07 or 47% of the original gross cost!