Our health is our most valued asset, and being in good health is often taken for granted - only in times of poor health or serious injury do we appreciate how important it is to look after ourselves. Private Medical Insurance (PMI) in the UK and the National Health Service (NHS) serve different purposes in healthcare delivery, and understanding the differences can help decide which option best suits your needs.
The NHS (as we know) is the UK’s publicly funded healthcare system, offering comprehensive medical care to residents free at the point of use. Funded through taxation, it provides universal healthcare to all UK residents, provided on a clinical need rather than the patient's ability to pay for the treatment. This publically funded system controls the expense by limiting the availability of drugs and specific treatments to those that will prolong life, typically with an expected 5 or more years.
PMI is a paid insurance policy that covers the cost of private healthcare. It provides faster access to treatment and greater choice of hospitals, doctors, and specialists. Treatments are proven to be more successful with lower re-admission rates. There are additional options such as alternative therapies, mental health support and travel insurance to name a few.
PMI compliments the NHS services by providing immediate treatment for acute, generally curable conditions and excludes chronic conditions such as diabetes. The NHS has significant delays for non-urgent procedures and comsultations, patients can be on a waiting list for years. PMI also offers patients the choice of drugs and treatments with no limitations to the cost.
In conclusion, while the NHS provides an essential, and excellent, universal healthcare free at the point of use, PMI offers faster access, greater flexibility, and additional comfort if you choose to pay for this insurance product. A combination of the NHS for emergency and chronic conditions, supplememnted by PMI for faster treatment, particularly for non-urgent procedures is a good balance for your overall healthcare needs.
Do you work hard for a living? Then protecting your income should be of paramount importance to you - right? Your income pays for so much, your home, food, clothes, fun and family needs - to name a few. If you can't earn your income because of an illness or injury, Income Protection will continue to pay a portion of your earnings whilst you recover, for essential expenses such as rent, mortgage payments, bills and daily living costs.
It's important to know what sick pay your employer will offer and for how long. A majority of emplyemnt contracts rely on the Statutory Sick Pay provided by the government, however £116.75 per week will not cover the essential expenses whilst you cannot work. However, if you are self-employed, there is no sick pay!
Key Features of Income Protection
- Regular Payments - typically policies will pay a percentage of your income, usually between 60 - 70% of your pre-tax earnings.
- Flexible Support - the term of the cover can be chosen for a short term such as 2, 3 or 5 years or until your chosen retirment age up to 70 years old. The shorter term options will be less expensive but could leave you financially vulnerable when the payout term comes to an end.
- Different options - you can select the cover to begin paying after a waiting period that suits your employer sick pay and or additional immediate savings. The longer the waiting period, the more affordable the premium becomes. The cover over the term of the policy can be selected to remain level or to increase annually in line with inflation, further protecting you against a long term disability.
- Claims - most insurers offer a guaranteed payment if you prove your income at the start of the policy, making the claims process more efficient at a time when you need to focus on yoru recovery.
Income protection is a vital safety net for individuals who rely on their income to meet financial obligations. It offers flexibility, long-term support, and peace of mind, ensuring you can focus on recovery without worrying about your finances. Whether you’re employed, self-employed, or a business owner, it forms an imperative part of your overall financial planning.
Life insurance means your insurer will pay a tax free lump sum to your beneficiaries (if the policy is placed into a trust) when you die or into your estate - so it's actually death cover. The last thing you want is to leave your family struggling to make ends meet in the midst of grieving for you.
Life insurance policies come in various forms, each tailored to meet different needs:
1. Term Life Insurance
- Coverage for a specific period eg. 10, 20 or 30 years.overage for a specific period eg. 10, 20 or 30 years.
- Only pays out if you die within the specified terms.
- Ideal for:
- Covering financail obligations for your children until they reach an age where they can be expected to be financially independent.
- Other financial obligations such as a mortgage or debt repayment.
- Variations:
- Level Term - the amount of cover remains level for the term of the policy
- Increasing Term - the amount of cover will increase each year at the policy anniversary in line with RPI
- Decreasing Term - the cover amount will decrease by a chosen percentage over the term of the policy, usually in line with the mortgage/debt repayment.
- Coverage for a your lifetime, as long as you pay the premiums.
- Payout is guaranteed on your death whenever that may be.
- Ideal for:
- Leaving an inheritance / legacy payment to loved ones
- Covering long-term financial needs, such as Inheritance Tax and funeral expenses.
- Covers two people, typically a couple.
- Payout occurs on first death, after which the policy ends.
- Payout options:
- Payout occurs on first death, after which the policy ends, oftem more cost effective than two separate policies.
- Payout can be selected on last death, ideally suited for joint financial planning debts such as Inheritance Tax.
- Coverage for people aged 50 and over. Acceptance is guaranteed, there is no medical underwriting which may make the premiums higher.
- Payout is guaranteed on your death, as long as you pay the premiums.
- Ideal for:
- Funeral expenses
- Small financial gifts.
Most insurers will require you to survive at least 14 days after the diagnosis meeting their definitions for the claim to be successful. The amount paid will be a percentage of your sum assured, depending on the severity of your condition. This enables smaller, less severe conditions to qualify for a claim and thus financial relief whilst having treatment. The cover is designed to stay in place for as long as possible. If your condition worsens, or you develop another condition, you can claim again until your cover amount ends.
Cover can be selected up to a maximum age of 75 years and can be level over the term or increase in line with RPI each year, protecting you against the effects of inflation. You will be medically underwritten and any pre-existing conditions or hereditary conditions may be excluded. It is imperative to fully disclose all your medical information on the application form to ensure a smooth and efficient claims process when needed.
All life policies, where appropriate, should be put in trust as this is one of the best ways to protect your family’s future in the event of your death. Your life insurance policy is a significant asset, and by putting life insurance in trust you can manage the way your beneficiaries receive their inheritance.
Trusts are a straightforward legal arrangement that let you leave assets to whoever you choose to be your beneficiaries. A trust is managed by one or more trustees – family members, friends, or a legal professional – until the trust pays out to your beneficiaries, which can either happen upon your death, or on a specified date such as when a child turns 18.
One of the main benefits of this approach is that the value of your policy is generally not considered part of your estate.
If a policy is not written under trust, the possible consequences include:
• payment of the proceeds from the product provider could be delayed
• the proceeds may not reach your intended beneficiaries
• the proceeds will form part of your estate, resulting in a potential or higher than expected inheritance tax liability.
There are 2 types of Trust for life policies:
Discretionary Trust
This is a trust where no beneficiary has an immediate right to income or capital. The creation of such a trust is deemed a Chargeable Lifetime Transfer. This means an initial Inheritance Tax liability of 20% may be payable if the value of the gift exceeds the available nil rate band. Further periodic charges may be payable every ten years and on the occasion of capital leaving the trust.
Only a Discretionary Trust enables the trustees to have discretion about how the trust's income is used. In a Discretionary Trust, the trustees are legal owners of the assets in the Trust. They must run the Trust to benefit the beneficiaries. They also have the power to appoint new beneficiaries.
Bare (Absolute) Trust
You, the policyholder or ‘Settlor’ of an Absolute/Bare Trust, cannot, in any way, benefit under this trust. The beneficiaries are named individuals who cannot be changed in the future. This includes any children born later and a spouse following a divorce. So, it’s important to be sure about who you want the beneficiaries and trustees to be at the outset.
The advantage of an Absolute/Bare Trust is that the pay-outs can be made quickly without long legal delays, and as with other trusts, the Inheritance Tax is likely to be nil or negligible.
While it's not essential that you speak to a solicitor about writing a life insurance in trust, it is strongly recommended.
There are 3 key roles involved in a Trust: The Settlor, The Trustees and the Beneficiaries.
The Settlor is the person who sets up the trust. They’ll appoint trustees and decide who the beneficiaries will be. They’ll also provide the property that will be held by the trust. This property is known as the ‘trust property’ and may be the proceeds from a claim under a protection policy, new or existing investments, the value of a pension contract or other miscellaneous assets.
The trustees become the legal owners of the trust property. They administer the trust for the sole benefit of the beneficiaries. There needs to be at least two trustees. They must administer the trust in accordance with the terms of the trust document and the law that governs the trust.
It’s important to choose the right trustees. They need to have good financial knowledge and be someone the settlor can trust. It could be a friend, a member of the settlor’s family or a professional adviser.
The settlor can appoint a professional trustee who will usually charge for their services. It may not be a good idea to ask a beneficiary to become a trustee as this could lead to a conflict of interests. This is particularly important in relation to a discretionary trust where the trustees have the power to lend money from the trust fund.
Under the laws of England and Wales a trustee must be over the age of 18. They should be mentally able and have a sound financial history.
The Beneficiaries of the Trust are the individuals or entities who are entitled to benefit from the assets held in the trust. The Trustees follow your wishes as expressed in your Letter ofWishes where you nominate your chosen beneficiaries and the value of the fund that you want them to receive.
It is imperative to ensure you have a completed, signed Letter of Wishes which sould be kept in a safe place with all your other documentation. You may also wish to keep an updated copy with your insurance adviser if this is a more suitable option. Reviewing your letter of wishes at least annualy will ensure your Trustees know how you want the Trust to be managed and who will benefit from it.
Using a trust in the UK can be highly beneficial for managing wealth, reducing taxes, and protecting beneficiaries. However, it’s not a one-size-fits-all solution, we will evaluate your circumstances and advise on the most suitable option for you.
If you die intestate (without a will) in the UK:
- Your assets will be distributed according to the intestacy rules, which prioritize close relatives like spouses, civil partners, and children. Unmarried partners, stepchildren, or friends are not included unless specified in a will.
- If no eligible relatives are found, your estate will go to the Crown (the government).
- Anyone planning their future - Life is unpredictable, and an LPA ensures your affairs are managed by someone you trust if you become unable to make decisions due to illness, injury, or age-related conditions. Without an LPA loved ones may need to apply to the Court of Protection to become a deputy, a process that is time-consuming, costly, and often stressful.
- Older adults at risk of developing conditions like dementia or Alzheimer’s benefit greatly from having an LPA in place before their decision-making ability diminishes.
- People with chronic or progressive conditions like Parkinson’s, multiple sclerosis, or other degenerative diseases should consider an LPA early to ensure their preferences are honored.
- Business Owners may need an LPA to appoint someone to manage their business operations if they become incapacitated.
- People without close family to rely on can create an LPA ensuring someone of your choosing handles your affairs.
- Parents of young children can use an LPA to plan the childrens' future financial and welfare decisions if they are no longer able to.
- Property and Financial Affairs LPA
- Health & Welfare LPA
This type of insurance is an important consideration if you are a shareholder in a business, particularly if the company has multiple owners. It ensures that, in the event of a shareholder’s death, critical illness, or permanent disability, the remaining shareholders retain control of the business and the affected shareholder’s family or estate is fairly compensated.
- Shares may be inherited by the family members or other beneficiaries who may lack business expertise or share different goals for the company.
- Beneficiaries may want to sell thier shares to third parties, spotentially introducing external influences into the business.
- Without a clear plan, disagreements over the value of the transfer of shares can arise.
Key Person Cover
Key Person insurance is designed to protect a company if a key individual essential to its success becomes unable to work due to death, critical illness, or permanent disability. The company owns the insurance policy and pay the premiums, while the key employee is the insured person. The business will receive the payout if the insured employee dies ir becomes seriously ill.
Considerations for getting Key Person Insurance
- If your business heavily relies on one or more people whose knowledge, skills, leadership, or relationships drive the company (e.g., a founder, top sales executive, or technical expert), losing them could significantly disrupt operations or revenue.
- The financial impact of losing a key person
- Loss of revenue due to drecreased productivity or relationships with clients
- Costs of hiring and training a replacement
- Potential harm to investor confidence or business valuation
- Smaller businesses often rely on a few key people. Losing even one of them could jeopardize the entire operation.
- If your business has borrowed money or secured investments based on the involvement of a specific individual.
A Key Person insurance policy will provide the necessary funds to support the company financially. It also reassures investors, shareholders, and partners that the business has a financial safety net in place to weather unexpected disruptions.
Relevant Life Cover
A Relevant Life Plan (RLP) is ideal for smaller businesses that may not have a group life insurance scheme or for high-earning employees who are restricted by pension contribution limits. It provides a tax free lump sum to the employees' family or chosen beneficiaries if they die while employed. The policy is owned by the company who also pays the premiums which are typically treated as an laoowable business expense, meaning they may be deductible for coporation tax purposes.
Is a Relevant Life Plan Right for your Business?
- Directors of limited companies can use an RLP for their life cover needs, however this structure is not allowed for Sole Traders, partnerships and LLP's. It is only available to individual employed by the business.
- SME's that do not have enough employees to justify a group life scheme.
- If you have high earning employees who are close to exceeding thier lifetime pension allowance, as the life cover in this structure does not count towards pension allowances.
- If you are an employer who wants to attract and retain talent by offering an additional benefit.
Benefits of a Relevant Life Plan
- Tax efficiency - Employers can claim premiums as a business expense, potentially reducing corporation tax. Employees do not pay income tax or National Insurance on the premiums. Benefits are paid out tax-free to the beneficiaries.
- Flexibility - Cover can be offered up to 20 times the employees salary to a maximum amount of £3 million.
- Inheritance Tax Efficiency - The policy pays into a Discretionary Trust, falling outside of the employees estate.
Key Person Cover
If you are a business owner and chosen to have a Key Person policy, you may want to put this policy in a Trust structure to avoid the proceeds being paid as part of the business or subjetc to Corporation Tax. If the proceeds of this policy are intended for your family or beneficiaries, it may also be appropriate to place this policy in a Trust to avoid probate delays and a possible inheritance tax liability.
However, if the policy is intended solely for the business to cover operational costs, debts, recruitment and training etc. then it would not be necessary to place the policy in a Trust.
Relevant Life Cover
A Relevant Life Plan must be placed in a Discretionary Trust at the outset of the policy.
- Consultations & Diagnostics - Quick access to specialists and diagnostic tests
- Hospital Treatment - Covers inpatient and outpatient care, including surgeries and procedures.
- Mental Health Support - insurers include counseling and treatment for mental health issues.
- Rehabilitation Services - Covers physiotherapy and other recovery treatments.
- Cancer Treatment - Comprehensive cancer care including treaments not usually available from NHS.
- Dental & Optical cover - Reimbursement for dental check-ups, glasses, and contact lenses with specified limits.
- Extended Cover for Family - Employees can add their dependents to the policy, often at a discounted rate.
- The premiums can be fully or partially funded by the employer and off set as a business expense.
- Employees will incur a taxable benefit-in-kind. The tax on thier annual premiums will be a P11d benefit in the employees annual tax return.
Benefits of Private Medical Insurance for Businesses
- Attracting and Retaining Talent - PMI is an attractive and sought after employee benefit, enhancing the employer's appeal in competitive job markets.
- Reducing Absenteeism - Faster access to healthcare together with rehabilitation services ensures employees can return to work quicker after illness or injury.
- Enhanced Wellbeing - Provides mental health support, physiotherapy, and wellness programs that contribute to overall employee health.
- Boosts Employee Morale - Employers demonstrate a commitment to employee health and wellbeing, improving job satisfaction and loyalty.
As part of a comprehensive benefits package, it enhances workplace satisfaction and reinforces an organization’s reputation as a caring and progressive employer. By investing in PMI, employers foster a healthier, happier, and more resilient workforce.
- Regular Income Replacement - Monthly income replacements up to 75% of gross income - paid by the insurer, not the employer, after a chosen waiting period (e.g. 4, 8, 12 weeks).
- Long-term coverage - Benefits can last until the employee recovers, reaches retirement age, or the policy term ends (e.g. 2, 3 or 5 years).
- Holistic Support - Policies often include rehabilitation services to help employees return to work as well as access to mental health support and counselling when needed.
Benefits of Income Protection Insurance for Businesses
- Attracting and Retaining Talent - Income Protection demonstrates commitment to employee wellbeing, making the company more attractive to prospective employees.
- Reducing Absenteeism - Employees are more likely to recover and return to work sooner after illness or injury, with financial and rehabilitation support.
Offering income protection as an employee benefit is a valuable way to safeguard employees' financial well-being while reinforcing the employer’s commitment to their health and recovery. For employees, it provides vital security during unexpected life events, and for employers, it fosters loyalty, enhances morale, and contributes to a supportive workplace culture.
- Policies are usually wriitten under a trust, to ensure the tax free lump sum benefit bypasses probate and reaches to the employee's nominated beneficiaries quickly.
- The employer pays the premiums as part of the benefits package, typically the premiums are tax deductible as a business expense and the benefit is not a taxable perk for employees.
- Group life insurance policies are more affordable than individual policies and they provide cover below a limit, free of medical underwriting.
Offering group life insurance as an employee benefit is a cost-effective way for employers to support their workforce and their families. It provides critical financial protection to employees’ dependents, fosters loyalty, and enhances the overall attractiveness of the company as a place to work.
Serious Illness Insurance as an Employee Benefit, often referred to as Critical Illness Cover, provides financial support to employees diagnosed with a serious medical condition covered by the policy. It is designed to ease the financial burden during challenging times by offering a lump sum payout that employees can use for medical treatment, recovery, or personal expenses.
- Provides a tax-free lump sum to the employee upon diagnosis of a covered condition, such as cancer, heart attack, or stroke. Some policies pay partial amount of the lump sum for less severe conditions.
- The employer pays the premiums as part of the benefits package, typically the premiums are tax deductible as a business expense and the benefit is not a taxable perk for employees.
- Offers crucial financial help during recovery, reducing the stress of managing expenses. Enables employees to prioritize their health and recovery without worrying about immediate financial strain.
Serious Illness Insurance is a valuable addition to employee benefits, providing financial protection during life-changing health events. It offers employees peace of mind and essential support while showcasing the employer's commitment to their well-being. This benefit fosters a positive workplace culture and helps attract and retain talent effectively.
Income protection is a vital safety net for individuals who rely on their income to meet financial obligations. It offers flexibility, long-term support, and peace of mind, ensuring you can focus on recovery without worrying about your finances. Whether you’re employed, self-employed, or a business owner, it forms an imperative part of your overall financial planning.
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