Why should advisers take note of relevant life policies?
When relevant life plans (RLPs) were introduced, I identified there was a need for this product and would fill the gap in the market for many of my clients.
This is because the plans provide death in service benefits without a group life scheme for the benefit of the employee’s family. If certain legislative requirements are met, the plan can offer significant tax benefits for employer and employee.
How did you build a business plan, a marketing plan and target clients?
Looking at my client base, I decided to start with all our SMEs where they weren't large enough for the normal death in service type arrangements, especially if they were just a small family run business with say, five employees.
We contacted these clients and carried a protection value review, with the aim initially to provide essential life cover for their family in a tax efficient way. We used these meetings as an opportunity to speak to the individuals and explain how the trust element will work with their own financial planning. This has generated additional business for us in the private client arena and increased the value of our relationship with the company our existing clients, as the employees valued what the employer had provided through us.
The other clients we had as a target group were those large, some even global companies, to review their death in service schemes. The main purpose was that we could use an RLP for the amounts of sums assureds that were over the free cover limit, particularly for the executives. In the majority of the cases we reviewed, the additional costs charged for the sum assured over the free cover limit by the existing provider of the scheme, premiums quoted were substantially lower to provide the same sum assured using a relevant life policy on top of the existing death in service scheme.
In some cases it has saved the employer several thousands of pounds per annum.
Can you give us an example?
A chairman who has a basic salary of £400,000 and a contract stating he would receive five times his salary as a death in service benefit. The free cover limit on the existing DIS plan was well below how much he needed and so was £1m short. Having obtained the costing from the existing DIS provider and compared the RLP cost, this saved over £6,000 per annum in premiums.
There was a shortfall in Keyman provision within the business and the savings from this has been redirected towards covering that. The board and executive team were very happy and this action has demonstrated the value to the company of having a financial adviser looking after their best interests on all levels.
How advisers use them?
RLPs can be used away from the corporate entity for providing cover for liabilities. Due to the tax benefits and flexibility of the using RLPs, I have now used these to provide personal cover in trust for business owners that fall within the RLP criteria. So instead of having £500k level-term policy paid from their net income, this is now a business expense, tax deductible and in trust to their beneficiaries.
So, who are your potential clients?
What are the RLP opportunities?
When reviewing the RLP opportunities within a business, I’ve realised it has opened many doors to companies where we have added value and enabled us to introduce other corporate services gaining new group personal pensions (GPPs) and employee benefit opportunities.
On the private-client side, it gives you a reason to talk about the benefits of trusts with inheritance tax planning or succession planning, and again, we have gained new clients and made existing relationships stronger by using RLPs as the reason to review.
Which tools you find useful?
There are some great tools that providers have available like the RLP calculators that help you to quickly identify amounts of cover and limits. Having tried quite a few, I found the L&G site quick and easy to use.
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