Relevant Life Insurance Guide
Tax-efficient life cover for directors and employees
Who this is for
- You're a company director or business owner wanting tax-efficient life cover
- You're self-employed through a limited company
- You want to provide employee benefits without creating taxable benefits
- You're looking for an alternative to personal life insurance that's paid by the business
- You want to maximise protection while minimising tax and National Insurance costs
What this cover helps with
Relevant life insurance is a tax-efficient life insurance policy arranged by a company for a director or employee. The business pays the premium (usually tax-deductible), and it's not treated as a taxable benefit for the employee. The payout goes to the employee's family, not the business.
Key outcomes:
- Life cover for directors and key employees without creating a taxable benefit
- Business premiums are typically tax-deductible
- No employer National Insurance contributions on premiums
- Death benefits fall outside the employee's estate for inheritance tax
- Competitive alternative to personal life insurance for company directors
Common cover types and options
Relevant Life for Directors
Most commonly used by company directors who want tax-efficient life cover. The company pays the premium, and the director's family receives the payout on death. No benefit-in-kind tax.
Relevant Life for Employees
Can be arranged for key employees as part of a benefits package. Helps with retention and demonstrates strong employee support without the tax costs of group life schemes.
Level Cover
The sum assured stays the same throughout the term. Useful if you want consistent protection or have non-decreasing financial commitments.
Decreasing Cover
The sum assured reduces over time, typically in line with a mortgage. More affordable if your main need is mortgage protection.
Critical Illness Add-On
Some insurers allow you to add critical illness cover to relevant life policies, providing a lump sum on diagnosis of serious conditions like cancer, heart attack, or stroke.
Trust Arrangement
Relevant life policies are typically written in trust, meaning the payout goes directly to beneficiaries without forming part of the employee's estate. This avoids inheritance tax and speeds up payout.
Pros and considerations
Benefits
- Tax-efficient: premiums usually fully tax-deductible for the business
- No benefit-in-kind tax for the employee
- No employer National Insurance on premiums
- Death benefits fall outside the employee's estate for inheritance tax
- More cost-effective than personal life insurance for directors paying higher-rate tax
- Can be arranged for multiple employees as part of a benefits strategy
Considerations
- Only available to employees or directors of a company (not sole traders)
- Policy is owned by the business, not the individual
- If the employee leaves the company, the policy typically ends
- Tax treatment can change, though it has been stable for many years
- Not suitable for sole traders or partnerships (personal life cover needed instead)
- Some insurers have limited relevant life offerings compared to personal life insurance
What affects cost and acceptance
Several factors influence both the price of your cover and whether insurers will accept your application:
Insurers and options
I compare leading UK insurers that offer relevant life policies. Not all insurers provide this product, and terms vary. Some allow critical illness add-ons, others don't. I'll find the most suitable and cost-effective option for your business and personal circumstances.
Important: Availability and suitability vary based on your individual circumstances, health, and requirements. I'll recommend what fits you best after understanding your specific situation.
Frequently asked questions
Who can have a relevant life policy?
Directors and employees of limited companies. It's not available to sole traders or partnerships, who would need personal life insurance instead.
How is relevant life different from personal life insurance?
Relevant life is paid by the company and is tax-efficient for both the business and the employee. Personal life insurance is paid by the individual from taxed income. For higher-rate taxpayers, relevant life is often significantly cheaper overall.
Are relevant life premiums tax-deductible?
Yes, typically. The premiums are treated as a business expense and are usually fully tax-deductible, subject to HMRC rules. Check with your accountant for your specific situation.
What happens if I leave the company?
The policy typically ends when you leave employment. Some insurers allow the policy to be transferred to a personal policy, but you'd then pay the premiums personally and lose the tax advantages.
Can I have relevant life and personal life insurance?
Yes. Relevant life can provide core cover while you're a director, and personal life insurance can top up if you need additional cover or want protection that continues if you leave the company.
Does relevant life affect my dividend or salary planning?
It can be part of tax-efficient remuneration planning. Instead of extracting more salary (which incurs tax and NI), you can provide life cover via relevant life, benefiting both the business and the director.
Can I add critical illness to a relevant life policy?
Some insurers allow this, others don't. Critical illness add-ons increase premiums but provide a lump sum on diagnosis of serious conditions. Not all relevant life policies offer this option, so product choice matters.
Is relevant life better than a group life scheme?
For small companies or individual directors, yes. Group life schemes often have minimum employee numbers and create benefit-in-kind charges above certain thresholds. Relevant life avoids these issues.
Related guides
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Please note: The information on this page is for general guidance only and does not constitute personal advice. Your individual circumstances, health, and requirements will determine what cover is suitable and available to you.
The Right Broker Ltd is an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority. (FCA number 715860).