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Essential For Any Key People

Company Life Insurance

As a business owner, you will no doubt be trying to find out the kind of company life insurance that is available and, more to the point, which ones provide income and corporation tax relief.

If that's you, then below you will find an introduction to the various policies you should consider along with information on how this company life cover can protect not only your business but also you and your staff personally.

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Company Life Insurance
Company Insurance Options:
  • Relevant Life Insurance
  • Key Person Insurance
  • Executive Income Protection
  • Shareholder Protection
  • Group Life Policy
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Personal cover paid by the business

Relevant Life Insurance

The first company life insurance policy is one of our favourites as it is the most tax-efficient for company owners. It is a simple life insurance contract that pays a tax-free lump sum to the family of the life assured in the event of their death. 

The business pays the cost of the premiums and claims complete corporation tax relief as a business expense, reducing the company's corporation tax liability for the year.

There is no benefit in kind to be paid by the life assured and no tax adjustment for the benefit, making this tax-free for the business and also tax-free for the life assured. As long as the policy is left in trust, there will also be no inheritance tax.

The policy was created to match the benefit of a 'death in service benefit' or group life scheme available to employees of larger companies with a group life cover in place. 

HMRC agreed that SMEs should have an alternative service benefit and approved relevant life policies back in 2006 and a company-paid life insurance option.

Relevant life can also be used to offer employee life insurance where the sum assured is paid to the employee's chosen beneficiaries to provide financial support, and the business still gets a tax-deductible business expense. It gives employees access to extra employee benefits and group life cover.

Relevant Life Insurance
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Insure your key people

Key Person Insurance

The second company life insurance policy is key person insurance. This insurance policy is designed to provide businesses with financial support in the event of the loss or absence of a key employee or business owner.

Similar to relevant life cover, it is a simple life insurance contract that is taken out on the life of a key person. Should that person die or experience a specified critical illness, a lump sum payment is made to the business to help replace the loss of income that might occur.

The policy is sometimes confused with shareholder protection insurance, which is designed to provide a cash lump sum in order for the business to buy back the shares of a deceased shareholder in the event of their death, resulting in the surviving shareholders being in control of the company.

Key person insurance also has the option of covering both death and critical illness, which is a feature that is not available in relevant life.

Similar to group life schemes, there is no benefit in kind to pay by the life assured. The business cannot claim corporation tax on the premiums as should the company receive the lump sum resulting from a claim, this would be tax-free. Therefore, HMRC won't allow tax relief both on the way in and out.

Key Person Cover
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Insure against sickness

Executive Income Protection

Both relevant life cover and key person insurance are paid out for either death or critical illness. However, it is much more likely that a person would have a more temporary health issue during life, such as an accident that they need to recover from or a period of absence due to stress.

This is where executive income protection can fill the gap. It is still a form of employee life insurance and provides financial security to small businesses or even employees should they be away from the business and unable to work for a period of time.

In the event of a director or employee being unable to work, the business may experience a drop in income. Executive income protection pays 80% of that person's salary to the business while they are unable to work. 

The business can then either use the money to pay someone else to replace them and pick up their work load, or it can be used to continue to pay that person's salary while they are off and offer the additional benefit of extended sick pay.

The policy is a qualifying business expense, and corporation tax relief can be claimed. There is no benefit in kind to pay for the life assured either, making this policy as tax efficient as relevant life cover. The policy can be used to either protect the business or offer employee life insurance to employees.

Executive Income Protection
Key man cover
Share buy back funding

Shareholder Protection Insurance

Shareholder protection insurance is not as well known but can be essential to a business partnership. It is still life insurance; however, the life assured is a shareholder of the company.

In the event of their death, the policy pays a tax-free lump sum to either the company or the surviving shareholders, who in turn use this to buy back the shares of the deceased shareholder from their estate.

The benefit of this arrangement is that the estate gets fair value for the shares, and the surviving shareholder gets control of the company.

Also, the insurance policy members will enter into a cross-option agreement that sets the rules and process so that in the event of a death, it is very clear what all parties had agreed in life.

There are multiple options when setting up a shareholder protection insurance plan, and using a financial adviser or other professional is highly recommended. 

Financial advisers will find the best provider and discuss different policies with you. The benefits and conditions covered by each provider can be complicated, and we strongly advise taking advantage of a free initial call with our team, who will be happy to help.

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The business pays the premiums

Group Life Insurance

Group life insurance is still life insurance and is a great way for larger companies with more than ten employees to offer employee life insurance. Also referred to as group life, group life insurance is one master policy that, as a death-in-service benefit, pays a sum assured to the family of the employee.

Having group life insurance in place can offer employees peace of mind and help with employee morale and is often included in a wellbeing services package that employers can offer their employees.

If an employee dies, the group life insurance pays out to the nominated beneficiary, and the group life cover remains in place, providing cover for the remaining employees. As well as being part of a wellbeing services plan, employee life insurance can be essential for the family of the deceased. 

The benefit is paid into a master trust. This master trust then pays out tax-free to the beneficiary of the deceased due to the treatment of the master trust.

Most employers offer other benefits, such as life insurance with benefits such as bereavement counselling and emotional support for loved ones, as just some of many benefits that can help attract employees to the business and compete with what other companies offer.

A group policy provides personal coverage for each employee and can be more flexible if staff members change jobs or if there is a high staff turnover. If an employee leaves, that one employee can be removed from the group life insurance and the employer can remove the cover for that one employee. This would not be the case if the employer had an individual policy or cover for each employee.

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What's required for a policy

Do all policies need medical underwriting?

Most employee life insurance, as well as group life insurance, relevant life insurance, executive income protection and key person, will all require medical information to be submitted, and any policy over £200,000 can be required to be medically underwritten before it is offered. 

The age and BMI of the life assured will also dictate the medical underwriting required. In most cases, employees in a group policy will not need additional medical information as group schemes are usually not medically underwritten.

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More than just insurance

Company life insurance extra benefits

Most employees would like to have access to company life insurance and death-in-service benefits and can also benefit from the peace of mind that family and loved ones will have some financial support and help in the event of their death. 

The sudden loss of salary should a person die can be catastrophic as that salary may be essential to the family. Even if the surviving family members have a salary income of their own, they may still need the extra support.

Services like bereavement counselling, wellbeing services and emotional support can be essential at such a difficult time for most employees.

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The main providers

Which insurers offer company life insurance?

Many of the main insurers offer key man insurance, such as Legal & GeneralZurich, Aviva, LV, Vitality and several others. As an independent regulated broker, Executive Life can obtain a quotation from every insurer and discuss the benefits and drawbacks of each provider to allow you to make an informed decision.

Key person policy
Insurance explained

What's is company life cover?

Company life insurance is what it says it is; it is life insurance paid for by your company. It usually falls into either relevant life, key person, executive income protection, shareholder protection or group life cover. Each policy has its place and will depend on the size of the company and its employees.

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How much cover do you need

Do I need insurance if I have death in service benefit?

Death in service is a great policy. However, it only covers death and won't pay out for sickness, critical illness or other forms of employees being away from work. If you have death in service, you may not need any further death protection insurance.  You could, however, benefit from income protection to cover any period of illness or shareholder protection that would pay would provide your family with an exit from the business in the event of your death or a critical illness.

Key person insurance
Who can get you cover

Can an employer insure your life?

Yes, and it is more common than you might think. Key person insurance is the most popular, where an employer might insure the life of an employee to cover the value loss to the business should you die. They may also include you in group life cover, where the benefit would be paid to the employee's family in the event of their death.

Key man cover

What's is life insurance and how does it work?

Life insurance is a contract that pays a lump sum payment to a beneficiary in the event of the death of the life assured. In many cases, this beneficiary may be the family of the deceased. In other cases, it may be the company or employer of the deceased. 

Life insurance can also cover events like a specified critical illness or, accident or sickness that causes you to be unable to work.

A premium is paid each month for the cover agreed, and there is usually an end date for the policy when it expires. At this point, if the policy has not been used, the premiums paid are lost, and the coverage ceases.

Company policies you might be interested in

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Executive Income Protection

Executive income protection is a tax-efficient policy that pays 80% of your monthly income to the business if you are unable to work due to sickness or ill health, until you return to work.

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Key Man Insurance Cover

A key person policy pays the business a lump sum when a key person who works for that business suffers a specified critical illness or dies. It's a simple term assurance policy that protects the business against losing a key person.

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Relevant Life Insurance

Relevant life insurance is the only life insurance policy that is an allowable business expense and, therefore, provides your company with corporation tax relief and essential life insurance for company directors and even employees.

It is a kind of death-in-service benefit where a lump sum benefit is paid to the family of the insured in the event of the death of the person covered. There is no inheritance tax to pay as the relevant life policy will be left into a relevant life plan trust, which may take the form of a discretionary trust.

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Shareholder Protection Insurance

In the event of the death of a shareholder the shares that they previously owned could be inherited by another family member, making this person you may never have met, a key shareholder in the decision making of your business. This is a very common risk that can be eliminated by using a simple shareholder protection policy.