Pension Term Assurance is not something that is promoted much, even in my own industry. Not a lot of people know about it, although some people do have Life Assurance cover included in their company Pension scheme. In most cases people keep their Pension savings and their Life cover needs apart but as you will see below, you can keep these policies separate and still avail of generous tax relief.
Is it possible to get tax relief on a Life Assurance policy?
Yes there is a Life Assurance policy that you can take out and get tax relief at your marginal rate of tax within revenue limits. It is called Pension Term Assurance.
So why would you take this kind of policy out?
This is for anybody who wants to have a tax efficient Life Assurance policy. In some cases the cost could be up to 40% less than taking it out as a normal life policy.
Who owns the policy and who benefits?
The person taking out the Life Cover owns the policy and usually it’s their estate (family) that receives the funds in the event of a claim.
So why doesn’t everybody take out Life cover this way?
There are certain restrictions depending on how it is being setup. You cannot assign this Life cover to a mortgage lender. The term of the cover is restricted to your retirement age (up to 75).
It used to be the case that the cost of Pension Term Assurance was higher than the cost of taking out a normal Life Assurance policy but more recently the gap between costs has reduced in many cases.
If I take this out, do I have to contribute to a Pension aswell?
No, a Pension Term Assurance policy is a separate, independent policy. The premium cost (less tax relief) is the only contribution required.
What about self-employed people?
A self-employed person can take out one of these policies. Depending on your company setup you may require an Executive Pension Term Assurance plan. Some self-employed people can set it up with the company paying the premiums with potential extra benefits (corporation tax relief).
Normal Life Cover v Pension Term Assurance
As you can see there are certain limitations and restrictions, but like a normal Life Assurance policy it pays out a lump sum on the death of the assured. And the key reason that you would take out a Pension (executive for self-employed) Term Assurance over a normal life assurance policy is to avail of the tax relief.