What is relevant life insurance?

Relevant life insurance is a life policy taken out and paid for by a company on the life of an individual director or employee, written into a discretionary trust for their family. It provides a tax-free lump sum to their loved ones if they die (or are diagnosed with a terminal illness) while employed. It is essentially individual death-in-service cover, designed for businesses too small to run a group scheme, or for high earners who want cover that does not count towards pension allowances.

Why is relevant life insurance tax-efficient?

Several reasons. The premiums are normally an allowable business expense, so they can attract corporation tax relief. They are generally not treated as a benefit in kind, so the employee pays no income tax or National Insurance on them. The payout is made through a discretionary trust, so it is usually outside the estate for inheritance tax. And the benefit does not form part of the individual's pension allowances. Compared with paying for personal life cover out of taxed income, the savings can be significant.

Who can have a relevant life policy?

Relevant life cover is for employees and directors of a business who are paid through PAYE — including salaried company directors. It is not available to the genuinely self-employed, such as sole traders or equity partners, because there is no employer-employee relationship to base it on. Contractors and directors operating through their own limited company can usually use it, since the company employs them.

What is the difference between relevant life and group death in service?

Group death in service is a scheme covering multiple employees, usually worthwhile for larger workforces. Relevant life cover does a similar job on an individual basis, which makes it ideal for small companies without enough staff to justify a group scheme, for one-person limited companies, and for high earners who want cover separate from the group arrangement. Both share the core tax advantages; relevant life is simply the individual version.

Can a company director get relevant life insurance?

Yes — salaried company directors are among the most common users, because it lets them hold life cover paid for by their own company, tax-efficiently, rather than from dividends or salary already taxed. It is particularly popular with contractors and owner-managed companies. The cover is on the director's life, paid by the company, in trust for their family.

Does the relevant life payout count towards inheritance tax?

Generally no, because the policy is written into a discretionary trust from the outset. That means the lump sum is paid to the trust for the family's benefit and usually falls outside the deceased's estate for inheritance tax. Setting up the trust correctly is part of arranging the policy, and an adviser will ensure it is done properly.

Relevant Life Insurance: Tax-Efficient Cover for Directors

If you run your own limited company, or employ a small team, you may have ruled out providing life cover because group "death in service" schemes feel like something only big employers do. There is a neater option built for exactly this situation: relevant life insurance. It lets a company provide individual death-in-service cover for a director or employee, with a stack of tax advantages that personal cover cannot match.

This guide explains what relevant life insurance is, why it is so tax-efficient, who can have it, and how it compares with group cover and personal policies.

What relevant life insurance is

A relevant life policy is a life insurance policy taken out and paid for by a company on the life of an individual director or employee, and written into a discretionary trust for that person's family. If the individual dies — or is diagnosed with a terminal illness — while employed, it pays a tax-free lump sum to their loved ones.

In substance it is individual death-in-service cover: the kind of benefit large employers provide through a group scheme, delivered on a single-person basis. That makes it ideal for businesses too small for a group arrangement, for one-person limited companies, and for high earners who want cover that sits outside their pension allowances.

Why it is so tax-efficient

This is the heart of relevant life's appeal. Compared with a director paying for personal life cover out of already-taxed income, a relevant life policy stacks up several advantages:

Premiums are normally an allowable business expense, so they can attract corporation tax relief for the company.
They are generally not a benefit in kind, so the employee pays no income tax or National Insurance on the premiums.
The payout is made through a discretionary trust, so it is usually outside the estate for inheritance tax.
The benefit does not count towards the individual's pension allowances, unlike some older executive pension-linked schemes.

For a higher-rate taxpaying director, having the company meet the premium with pre-tax money — rather than paying for cover from dividends or salary already taxed — can represent a meaningful saving over the life of the policy. The exact benefit depends on your circumstances, so confirm the position with your accountant.

Who can have it — and who cannot

Relevant life cover relies on an employer-employee relationship, so it is available to:

employees of a business, and
salaried directors, including those running their own limited company.

It is not available to the genuinely self-employed — sole traders or equity partners — because there is no employer to take out and pay for the policy. This is the key distinction from ordinary personal life cover: relevant life is an employment benefit, so you need to be employed (including by your own company) to use it. Contractors operating through a limited company can usually take advantage of it, since the company employs them.

Relevant life vs group death in service

The difference is mostly about scale:

Group death in service covers many employees under one scheme and is usually cost-effective once you have enough staff.
Relevant life does the same job one person at a time, which makes it perfect for small companies without enough employees for a group scheme, for one-person limited companies, and for high earners who want individual cover alongside or instead of a group arrangement.

Both share the core tax treatment. Relevant life is simply the individual-scale version, and often the only practical route for very small businesses.

How much cover and how it is structured

Relevant life policies are typically arranged as level or increasing term assurance to a chosen age, with the sum assured set as a multiple of remuneration (insurers allow generous multiples because it is treated as an employment benefit). The policy is written into a discretionary trust from outset, naming the intended beneficiaries, so the payout reaches the family directly and outside the estate. Getting the trust right is part of setting the policy up correctly.

Where it fits in your protection

Relevant life cover is the tax-efficient way to provide personal death-in-service protection through a company. It sits alongside key person insurance (which protects the business's profits) and shareholder protection (which protects ownership). If you are also thinking about your estate, relevant life cover paid into trust can help, and our inheritance tax calculator gives you a quick estimate of any potential IHT bill. The business protection guide for directors puts the whole picture together.

Get advice from a regulated adviser who can arrange the policy and the trust correctly and confirm the tax treatment with your accountant. Cover Your Family is not FCA regulated and does not give advice — we connect you, free of charge, with a separate, FCA-regulated adviser who provides whole-of-market business protection advice with no obligation. Enquire today to find out what cover is available for you and your company.