What is a Relevant Life Policy?
Relevant life insurance for company directors is life insurance that pays a tax-free lump sum to your family if you die, but is paid for by the business as a recognised expense under the wholly and exclusively rules.
There is no benefit-in-kind charge either, so a higher-rate director can save 64% in tax and tens of thousands of pounds over the life of the policy.
Relevant life policies are written in trust from the outset, which makes it inheritance tax-free for your family.
The Quick Version
- Life insurance for you personally but paid for by your business
- Premiums qualify for corporation tax relief
- No benefit-in-kind charge
- Paid tax-free to your family if you die
Illustrative cost comparison
Relevant Life insurance is paid for by your company, not by you personally, and that's where the saving comes from. Pay for cover personally as a higher-rate taxpayer and you're funding it from taxed income — the company pays Corporation Tax on its profit, then you pay dividend tax on what's left, before you've even bought the policy. Pay for the same cover through a Relevant Life policy and the company claims Corporation Tax relief on the premium directly, with no dividend tax and no benefit-in-kind charge for you. The table below shows the difference for a £100-a-month policy.
What does it offer?
A Relevant Life Insurance Policy is a company-paid life insurance arrangement that gives an employee or director personal life cover, while using the employer as policyholder. HMRC treats these as relevant life policies when they meet conditions similar to an excepted group life policy, including limits on beneficiaries, permitted benefits and age. HMRC’s guidance confirms how a qualifying relevant life policy is treated for employment income purposes.
In practice, the policy pays a lump sum if the life assured dies during the term. Premiums are paid by the company. When structured correctly, the expense is normally allowable if it meets the wholly and exclusively test for business purposes, and the benefit for the employee is typically exempt from a benefits‑in‑kind charge under section 307 ITEPA.
Most policies are set up under a discretionary trust so that proceeds pass rapidly to chosen beneficiaries and remain outside the estate. HMRC’s beneficiary conditions require that benefits are payable to individuals or charities, rather than the employer. This approach supports prompt distribution and connects with general trust and inheritance tax principles.
What a Relevant Life Policy can and cannot cover
To qualify, the policy must only provide permitted benefits. HMRC sets the guardrails: no surrender value, benefits limited to death with terminal illness typically acceptable, an upper age limit that does not exceed 75, and beneficiaries restricted to individuals or charities. See HMRC on permitted benefits and no surrender value, the age 75 condition, and who may benefit.
If you are weighing up business cover that pays the company rather than your family, read our guide to Key Person (Key Man) Insurance.
At‑a‑glance comparison
How much does Relevant Life cover cost?
Premiums depend mainly on two things: how much cover you want, and your age when you take the policy out. The table below shows indicative monthly premiums for a healthy, non-smoking director at £500,000 and £1,000,000 of cover, across a range of ages.
Key benefits for directors and small employers
Tax‑efficient funding through the company. When a policy is part of a genuine remuneration package, premiums are usually deductible if incurred wholly and exclusively. On the employee side, the cover is commonly exempt from a P11D charge under section 307 ITEPA.
No impact on the employee’s pension allowances. Relevant Life sits outside registered pension scheme benefits. HMRC’s EIM guidance and the Insurance Policyholder Taxation Manual set the conditions for excepted life arrangements. For context, the Lifetime Allowance was abolished on 6 April 2024 and replaced by new allowances for lump sums and death benefits.
Personal protection delivered tax‑efficiently. Instead of drawing post‑tax money to pay a personal policy, the company funds the premium. If your company is taxed at current Corporation Tax rates and you are a higher‑rate taxpayer per income tax bands, using the business to fund a Relevant Life premium can reduce the overall cost for equivalent cover. The saving depends on profit levels, marginal tax rate and how you normally extract income.
A trust framework for quick payment to your family. A discretionary trust aligns with HMRC’s beneficiary restrictions and helps keep proceeds outside the estate under general trust and IHT rules. MoneyHelper also provides accessible guidance on using trusts to reduce inheritance tax exposure.
Who qualifies, and when it makes sense
You need an employer–employee relationship. Relevant Life is an employer benefit for an employee or office holder. Directors are classed as employees for National Insurance purposes, which is why a limited company can provide this type of cover for a director on payroll.
Sole traders cannot use Relevant Life for themselves. A sole trader is not an employee of a separate legal entity, so the structure does not fit the employer‑funded model set out by HMRC. If you operate as a sole trader or a non‑salaried partner, consider a personal policy. For a primer on life insurance, see MoneyHelper’s guide to what life insurance is.
Cover must follow excepted‑policy conditions. Broadly, that means benefits are limited to death, there is no surrender value, beneficiaries are individuals or charities, and cover does not run beyond age 75.
No critical illness or disability riders. Excepted policy rules allow only death benefits. Ill‑health or disablement benefits are excluded in IPTM7030 and the EIM guidance. If you need illness cover, consider a separate personal policy or business cover designed for that purpose.
Step‑by‑step setup
- Decide the lump sum and the term. Think about what your family would need and align the term with your working horizon. Keep insurer limits and HMRC conditions in mind, such as the no‑surrender‑value requirement and age limit.
- Choose an insurer and complete underwriting. The process mirrors standard life insurance: health questions, possibly a medical if the sum assured is high.
- Put the policy under a discretionary trust from day one. This helps keep benefits outside your estate and directs funds to the people you choose. HMRC sets out who can benefit under an excepted policy in IPTM7035.
- Pay premiums from the company and keep clean records. Your accountant will want to see that premiums form part of a normal benefits package and meet the wholly and exclusively test for corporation tax. On the employee side, the exemption from a P11D charge comes from ITEPA s307.
Want a hand with the trust deed, sums assured and documentation? Start with our Guide to Relevant Life Cover or speak with us for tailored help.
Eligibility checklist
Relevant Life vs other options
Relevant Life vs personal life insurance. Personal policies are paid from post‑tax income. A Relevant Life policy is paid by the employer, with potential corporation‑tax relief if costs are wholly and exclusively, and typically no benefit in kind for the employee.
Relevant Life vs Key Person Insurance. Relevant Life benefits your family. Key Person benefits your company. HMRC’s beneficiary rules for excepted policies make it clear that policies paying the employer or co‑owners do not qualify as excepted life policies.
Relevant Life vs Shareholder Protection. Shareholder Protection is designed to fund a buy‑out of shares, usually with policies written under cross‑option agreements. That is different from a family benefit.
Relevant Life vs group life schemes. Larger employers often use registered group life policies within a pension wrapper. SMEs may not have the headcount for that. The ABI explains how group life pays a lump sum to families. Relevant Life provides a similar outcome for individuals but sits outside the registered‑scheme framework and follows HMRC’s excepted policy conditions. For context on the pension side, note the abolition of the Lifetime Allowance and replacement with new lump‑sum allowances.
A quick worked example
Take a director paying £100 a month for cover. Paid personally as a higher-rate taxpayer, that £100 premium actually costs £207.52 once dividend tax is accounted for. Paid through a Relevant Life policy instead, the company claims Corporation Tax relief on the premium directly, bringing the true cost down to £75 a month — a saving of £132.52 every month, or £39,756 over a 25-year policy term. Your own figures will depend on your profit level, how you'd otherwise extract income, and your personal tax band — speak to your accountant for a calculation based on your circumstances.
FAQs
Is Relevant Life a benefit in kind for the employee?
Not usually. Where conditions are met, employer spending on a lump‑sum death benefit is generally exempt under ITEPA s307. Your accountant should still ensure the company claims the expense on a wholly and exclusively basis.
Can a sole trader take Relevant Life cover on themselves?
No. The structure requires an employer–employee relationship. Directors on payroll are treated as employees for NI purposes. Sole traders are not employees of a separate entity.
Can I include critical illness?
No. Excepted policy conditions permit death benefits only and forbid other benefits like ill‑health or disability cover. See IPTM7030 and HMRC’s relevant life policy guidance.
Does the payout form part of my estate for IHT?
When the policy is under a discretionary trust and benefits are paid to individual beneficiaries, proceeds are generally outside the estate. See HMRC on beneficiaries for excepted policies and trusts and inheritance tax.
What about lifetime allowance limits?
Relevant Life sits outside registered pension benefits. For registered schemes, the Lifetime Allowance was abolished on 6 April 2024 and replaced by the lump sum allowance and the lump sum and death benefit allowance.
The bottom line
For many UK directors, a Relevant Life Policy is a precise way to protect family finances while using company funds efficiently. It aligns with HMRC’s framework for death‑benefit provision, it can sit neatly in a benefits package, and it avoids common pitfalls like benefits‑in‑kind charges when structured properly. If you want help selecting a sum assured, setting up the trust and coordinating with your accountant, start with our Guide to Relevant Life Cover or talk to us about a tailored plan. If you also want to protect the business itself, pair this with Key Person cover and, where needed, Shareholder Protection.
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