Relevant life insurance
An employer paid life policy for a single employee or company director, with a calculator showing what it saves against paying personally.
What relevant life insurance is
Relevant life insurance is a death in service policy that a business takes out and pays for, to cover a single employee. That employee can be a company director. It pays a lump sum to the employee’s family if they die while covered, and it is written into a trust so the money goes directly to their beneficiaries.
It exists to give smaller companies something close to the death in service benefit large employers provide through a group scheme, without needing the headcount a group scheme usually requires.
Who it suits
- Company directors currently paying for personal life cover out of already taxed income.
- Small businesses too small for a group death in service scheme.
- Employers wanting to offer a meaningful benefit to a key employee.
- Higher and additional rate taxpayers, where the difference between the two routes is largest.
Cost comparison calculator
Relevant life: cost through the business versus paying personally
Paying personally means using income you have already paid tax and National Insurance on. Paying through the company is normally an allowable business expense. This shows the gross earnings each route needs to fund the same premium.
A simplified illustration, not tax advice. It assumes premiums qualify as an allowable business expense and are not treated as a benefit in kind, which depends on the policy being set up correctly. Salary route includes employer National Insurance at 15% and employee National Insurance at 2% for higher earners. Tax advice is not regulated by the Financial Conduct Authority. Confirm your position with your accountant.
How the tax treatment works
The appeal is mainly the tax position. In most correctly arranged cases:
- The business pays the premiums, and they are typically an allowable business expense where the spend is wholly and exclusively for the purposes of the trade.
- The premiums are not usually treated as a benefit in kind for the employee.
- Because the policy is written in trust, the payout does not usually form part of the employee’s estate for inheritance tax.
- The benefit does not normally count towards pension allowances, unlike some older arrangements.
Tax treatment depends on individual and business circumstances and can change. Tax advice is not regulated by the Financial Conduct Authority, so confirm the position with your accountant.
Relevant life versus personal cover
| Relevant life | Personal life insurance | |
|---|---|---|
| Who pays | The business | You, from taxed income |
| Tax treatment | Usually an allowable business expense, not normally a benefit in kind | Paid from income already taxed |
| Who is covered | One employee per policy | One person, or two on a joint policy |
| Critical illness | Not usually included | Can be added |
| If you leave or close the company | Cover normally ends or must be transferred | Stays with you |
| Written in trust | Yes, as standard | Optional, and often worth doing |
General product characteristics. Individual policies and tax positions vary, so check with the insurer and your accountant.
The rules it has to meet
For the treatment above to apply, the policy has to be set up as a relevant life plan rather than an ordinary policy paid by the company. In broad terms that means:
- It pays a lump sum on death, or on terminal illness, before a set age.
- It has no surrender value and no investment element.
- Benefits go to the employee’s family or dependants through a trust, not to the business.
- It is not part of an arrangement whose main purpose is tax avoidance.
This is why arranging it through someone who sets these up regularly matters. An ordinary policy paid for by the company does not get the same treatment.
Working out what you need
If you are weighing this against ordinary cover, compare both. Personal term life insurance is simpler and stays with you if you change job or close the company. Relevant life can be more efficient while you are running the business. Our life insurance calculator helps size the cover either way, and putting life insurance in trust explains the trust element that relevant life uses as standard.
“For a higher rate taxpayer running a limited company, this is one of the few genuinely efficient bits of protection planning left. The catch is that it only works if the policy is written as a relevant life plan with the right trust in place. An ordinary policy paid by the company does not get the same treatment, so it is worth arranging properly.”
Frequently Asked Questions
Can a sole trader take out relevant life insurance?
Generally no. It is an employer paid policy, so it needs an employer and employee relationship. Sole traders without that structure would normally look at personal life insurance instead.
Does relevant life insurance include critical illness cover?
Not usually. Relevant life policies generally cover death and terminal illness, so critical illness cover is normally arranged separately.
Is relevant life insurance a benefit in kind?
In most correctly arranged cases the premiums are not treated as a benefit in kind, but this depends on circumstances and the policy being set up properly. Tax advice is not regulated by the FCA, so confirm with your accountant.
Can it cover more than one director?
Each policy covers one person, so a business with several directors takes out a separate policy for each.
What happens if I close the company?
The cover belongs to the business, so it usually ends. Some insurers allow the policy to be transferred to the individual or a new employer, so ask before you take it out.
How much cover can I have?
Cover is normally set as a multiple of total remuneration, and the multiple available varies by insurer and age. An adviser can confirm the maximum for your circumstances.
How We Researched This Guide
This guide explains relevant life plans as a product category, using published UK insurer plan terms and HMRC guidance on the conditions such policies must meet.
The calculator is a simplified illustration using headline UK rates. It compares the gross earnings needed to fund a premium personally against the net cost to a company after corporation tax relief.
- HMRC guidance on relevant life policies and the conditions for excluded group life policy treatment.
- Published UK insurer relevant life plan terms and key features documents, 2025 to 2026.
- HMRC published rates for corporation tax, income tax, dividend tax and National Insurance for the current tax year.
- MoneyHelper, impartial guidance on life insurance and trusts.
Sources
- HMRC guidance on relevant life policies, including the conditions a policy must meet for the intended treatment: lump sum on death or terminal illness, no surrender value, benefits to family or dependants, and no tax avoidance main purpose.
- Published UK insurer relevant life plan terms and key features documents, 2025 to 2026.
- HMRC published tax rates for the current tax year, used in the calculator: corporation tax 19% small profits and 25% main rate, dividend tax 8.75%, 33.75% and 39.35%, employer National Insurance 15%.
- MoneyHelper, impartial guidance on life insurance written in trust.
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Life Adviser is a trading style of PJG Financial Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 919697). We are an insurance broker, not an insurer. We help you compare life insurance and protection products from selected UK insurers, brokers and adviser partners, and we may receive a commission if you take out a policy. Quotes, cover, premiums and acceptance are subject to eligibility, underwriting and insurer terms. This page is general information, not personal advice.