Relevant life insurance in the UK is a tax-efficient life insurance policy paid for by a limited company on behalf of an employee or director. It provides a death-in-service benefit, paying a lump sum to the employee's family if they die during the policy term. It is particularly suitable for small businesses and company directors who want life cover arranged through their business.
Who Is Relevant Life Insurance For?
Relevant life insurance is primarily used by company directors who want life cover paid for by their business rather than from post-tax personal income. It is also used by small employers who want to offer a death-in-service benefit to key employees without the cost and complexity of a group scheme.
The Tax Advantages of Relevant Life Insurance
The premiums are typically treated as an allowable business expense, meaning the company receives corporation tax relief on the cost. The premiums are also generally not treated as a benefit in kind, so the director pays no income tax or National Insurance on them. The payout is made into a discretionary trust and is generally free of inheritance tax.
HMRC guidance confirms these tax treatments, subject to the policy meeting the conditions set out in the relevant legislation. We strongly recommend discussing the specific tax position with your accountant alongside taking independent protection advice.
How Much Cover Can You Get?
HMRC places limits on the sum assured for relevant life insurance, typically 25 times the employee's total remuneration, including salary and dividends.
How Is Relevant Life Insurance Set Up?
The policy is written into a discretionary trust from outset. This means the payout falls outside the director's estate for inheritance tax purposes and can be paid to the family quickly without going through probate. TopQuote's advisers handle the trust documentation as part of arranging the policy.
Relevant Life Insurance vs Group Death in Service
Group death-in-service schemes require a minimum number of employees and more administration. Relevant life policies are individual policies arranged for one person, making them more flexible and accessible for small companies. They can also continue if the company structure changes, subject to the policy terms.
To learn more, visit our life insurance page or consider income protection.
Useful External Resources
HMRC: Relevant Life Policy Conditions (EIM21820)
FCA: Understanding Protection Products
Sources & References
HMRC Employment Income Manual EIM21820, Relevant Life Policies (gov.uk)
FCA, Financial Services Products (fca.org.uk)
Tanweer Hussain is the editor at TopQuote, an independent life insurance broker and appointed representative of The Openwork Partnership with over 20 years of experience. He oversees the accuracy of all published content, including the factual and regulatory detail that matters most on claims-related topics. All content on this page has been reviewed for FCA compliance.
Looking for More Information?
This article is intended as general information only and does not constitute financial advice. Your individual circumstances will affect which options may be available to you. To understand your options and find out whether protection insurance may be suitable for you, speak to a qualified adviser.
Get in touch with the TopQuote team at top-quote.co.uk or call 0161 974 3710, Monday to Friday, 8:30am to 5pm.