Relevant life cover
Death-in-service style life cover for directors and employees of limited companies, paid for by the business. Often a markedly tax-efficient way to buy personal life cover.
Relevant life cover is an individual life policy taken out by a limited company on the life of a director or employee, with the pay-out going to that person's family through a discretionary trust. It gives a small company the equivalent of the death-in-service benefit that big employers provide, without needing a group scheme. Because the company pays the premiums, and those premiums are typically treated as a business expense rather than personal income, the same cover often costs meaningfully less overall than a policy paid from post-tax salary or dividends.
Who this is for
- You are a limited company director paying for personal life insurance out of post-tax income.
- You run a small company that cannot justify a full group death-in-service scheme but wants to cover one or a few people.
- You are a high earner who wants life cover kept outside pension-related allowances and benefit-in-kind charges.
- You employ key staff and want a recruitment-grade benefit without a group scheme's minimum headcount.
How relevant life cover works
The company is the policyholder and pays the premiums. The life insured is the director or employee. The policy is written into a discretionary trust at outset, and on death during the term the insurer pays the sum assured to the trustees, who pass it to the family. Pay-outs made this way are normally free of income tax and, because the trust sits outside the estate, normally free of inheritance tax (IHT, the 40% charge on estates above the available allowances) as well.
The tax position, hedged properly
Premiums paid by the company are typically treated as an allowable expense for corporation tax, provided HMRC's wholly-and-exclusively test is met, and are not normally treated as a benefit in kind (a P11D charge, the tax on perks) for the employee. Nor do premiums normally count as pension contributions, so the cover sits outside pension allowances. None of this is automatic: treatment depends on your circumstances and HMRC practice, so confirm the position with your accountant. The headline comparison is still striking for many directors: paying for cover personally means earning the premium, paying income tax and National Insurance on it, then paying the insurer; relevant life cover removes most of that friction.
How much cover is available
Insurers commonly allow sums assured up to a multiple of total remuneration, often in the range of ten to twenty-five times salary plus dividends depending on age and insurer. Cover is life only: relevant life policies cannot include critical illness cover, although some insurers offer significant-illness benefits structured to stay within the rules. Terms typically run to a normal retirement age, often capped around 75.
Who qualifies, and who does not
The person covered must be an employee for tax purposes, which includes salaried directors. Sole traders and equity partners cannot hold relevant life cover on themselves, because there is no employer-employee relationship; for them, personal cover written in trust is the route. A limited company can, though, take out relevant life policies on its employed staff.
Leaving the company
If the person leaves, most policies can be continued: either the new employer takes over the premiums, or the policy converts to a personal one paid by the individual. That portability matters; we check the continuation options when comparing insurers.
How Major Money Matters helps
Specific things we do for this product. No generic platitudes.
Run the personal-versus-company comparison
We model the cost of the same cover paid personally and through the company, so you and your accountant can see the saving in real numbers before deciding.
Trust set up correctly at outset
Relevant life cover only works through the right discretionary trust. We complete the trust paperwork alongside the application, not as an afterthought.
Quoting across a number of insurers
Insurers differ on maximum remuneration multiples, continuation options and underwriting. We compare a range of insurers and pre-assess any medical history first.
Coordinate with your accountant
We supply the policy and trust documentation your accountant needs to confirm the corporation tax and benefit-in-kind treatment for your circumstances.
Frequently asked questions
Is relevant life cover a benefit in kind?
Normally no. Premiums paid by the company are not usually treated as a P11D benefit for the employee, and are typically allowable against corporation tax if HMRC's wholly-and-exclusively test is met. Confirm the treatment for your company with your accountant.
How much cheaper is it than paying personally?
It depends on your tax position. A director paying for cover from dividends or salary first pays income tax and National Insurance on the money used. Routing the premium through the company typically removes much of that cost. We model your actual numbers rather than quote a generic saving.
Can relevant life cover include critical illness?
No. The rules restrict relevant life policies to life cover (some insurers include terminal illness and limited significant-illness benefits). Directors who want critical illness cover usually run a personal policy alongside, or look at executive income protection for illness-related income risk.
Who receives the pay-out?
The policy is written into a discretionary trust from day one, and the trustees pay the proceeds to the family or other beneficiaries. Paid this way the lump sum is normally free of income tax and IHT. The money never belongs to the company.
I am a sole trader. Can I have relevant life cover?
No. Relevant life cover requires an employer-employee relationship, and a sole trader cannot employ themselves. Personal life cover written in trust achieves the family-protection outcome instead. If you trade through a limited company and take a salary, you qualify.
What happens if I close the company or move on?
Most relevant life policies offer continuation options: a new employer can take the policy over, or it can convert to a personally owned and paid policy without fresh underwriting. We check continuation terms when we select the insurer.
Related
Other protection products that often pair with this one.
Key person insurance
A lump sum paid to the business if a person it cannot trade without dies or falls seriously ill. Buys time to recruit and replace lost profit.
Read moreExecutive income protection
Income protection paid for by the company on a director or key employee, with cover that can include dividends and employer pension contributions.
Read moreGroup life insurance
Death-in-service cover for your team, typically two to four times salary. Available to far smaller companies than most owners expect.
Read moreWhat our clients say
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See what relevant life cover would save you
Book a quick 15-minute call with Ollie Allen or one of the Major Money Matters protection team. Bring your current life cover premium and we will model the company-paid equivalent for your accountant to review.
We aim to return your call as quickly as we can. Mon to Fri 9am to 5pm, weekend appointments on request.