What Is Relevant Life Insurance?

The Basics

A relevant life policy is a term life insurance policy taken out by a company to provide a death-in-service benefit for an individual employee or director. If the insured person dies during the policy term, a lump sum is paid to their family or dependants via a discretionary trust.

Unlike a group life scheme, a relevant life policy covers just one person — making it ideal for small businesses, limited companies with one or two directors, or high earners who want cover above group scheme limits.

Who Pays the Premiums?

The company pays the premiums, not the individual. This is one of the key advantages — the premiums are typically treated as an allowable business expense, meaning the company receives corporation tax relief on the cost.

The individual does not pay income tax or National Insurance on the premiums, and the premiums do not count towards their annual pension allowance.

The Tax Advantages

Relevant life insurance offers significant tax efficiency compared to a director taking out a personal life insurance policy from their own net income:

• Premiums are paid by the company from pre-tax profits
• No income tax or NI on the benefit-in-kind for the employee
• The payout is made via a discretionary trust, keeping it outside the employee's estate for inheritance tax purposes
• Premiums do not count towards the pension annual allowance

For a higher-rate taxpayer, the effective cost of cover can be significantly lower than an equivalent personal policy.

Who Is It Suitable For?

• Limited company directors who want tax-efficient life cover
• Small businesses that cannot justify a full group life scheme
• High earners who have exceeded group scheme limits
• Employees whose employer wants to provide a death-in-service benefit without a group scheme

How Much Cover Can You Get?

Most insurers will provide cover of up to 25 times the individual's total remuneration (salary plus dividends). This makes relevant life insurance particularly attractive for directors who take a combination of salary and dividends.