Yes, and for husband-and-wife companies this is one of the most straightforward ways to double the tax efficiency of your protection arrangements without adding any complexity.
If your spouse works in the business or holds shares in your limited company, they qualify for their own relevant life policy in exactly the same way you do. The company arranges the policy, the company pays the premiums, the company claims corporation tax relief, and your spouse gets the same tax-efficient life cover as you, under their own individual policy.
What the Rules Actually Say
Relevant life insurance must be arranged by a limited company on behalf of an employee or director of that company. The key condition is the employment relationship. The person being covered must have a genuine connection to the business, either as a director or as an employee on PAYE.
For most husband-and-wife companies, this is straightforward. If your spouse is a director of the company, they qualify immediately. If they’re an employee drawing a salary through the payroll, they qualify on that basis. If they hold shares but aren’t actively working in the business, the position is worth confirming with your adviser, but for most family companies where both spouses are genuinely involved, coverage is available for both.
The key thing to understand is that each person needs their own individual policy. You can’t add your spouse to your existing relevant life policy. Relevant life is individual by design, one policy per person, each written into their own discretionary trust. But arranging a second policy for your spouse through the same company is typically a simple process.
Why This Makes Sense for Family Companies
For a husband-and-wife limited company, having both directors covered under separate relevant life policies means the company is providing tax-efficient life cover for both of you and the saving applies to both premiums.
If both of you are higher-rate taxpaying directors, the combined saving on two relevant life policies versus paying for the same cover personally can be very significant over the term of the policies. The company pays both premiums as allowable business expenses, claims corporation tax relief on both, and neither policy creates a Benefit in Kind charge for either director.
It’s also worth noting that having a relevant life policy in place for both directors can be a natural complement to a shareholder protection arrangement, where each director also has a policy in place to fund the buyback of shares in the event of death. The two policies serve different purposes; relevant life protects your family, shareholder protection protects the business, but they work alongside each other and can often be arranged at the same time.
What Level of Cover Can My Spouse Get?
The cover level for your spouse’s relevant life policy is calculated in the same way as yours and is based on their total remuneration from the company, including salary and dividends. Insurers typically allow up to 25 times total remuneration as the maximum sum assured.
For a spouse who draws a modest salary but meaningful dividends, this can translate into a very substantial level of cover – far more than a personal policy based on salary alone would provide, and at a fraction of the real cost once the tax efficiency of the relevant life structure is factored in.
Does My Spouse Need Separate Underwriting?
Yes. Each relevant life policy is individually underwritten, meaning your spouse will need to answer health questions, disclose any medical history, and go through the same application process as any other policyholder.
For most spouses in good health this is straightforward. Where there is any health history to disclose, different insurers take different approaches, which is why using a whole-of-market broker matters here too. The right insurer for your spouse’s policy may not be the same as the right insurer for yours, and getting the underwriting right from the outset ensures the policy is valid and the cover is secure.
What About Sole Directors Whose Spouse Isn’t Involved in the Business?
If your spouse has no employment or directorship connection to your company, they cannot be covered under a relevant life policy arranged through that business. The HMRC qualifying conditions require the person being insured to have a genuine employment relationship with the company.
In that situation, personal life insurance is still an option for your spouse, arranged and funded personally. But it won’t benefit from the relevant life tax treatment, because there’s no employment relationship to underpin the arrangement.
The most common solution for sole directors with non-working spouses is to have a relevant life policy on the director through the company, and a personal policy on the spouse arranged separately. The combined cost is still lower than two personal policies would be, because the director’s cover is being funded at the more efficient relevant life rate.
How to Arrange Cover for Both Directors
If you’re a husband-and-wife company and neither director currently has a relevant life policy in place, arranging both simultaneously is the most efficient approach. Executive Life searches every insurer in the market for both policies, compares the options for each individual, and manages both applications through to completion.
If one director already has a relevant life policy in place and you’re looking to add a second policy for the other director, that’s equally straightforward. The existing policy doesn’t need to change, and the new policy is arranged independently alongside it.
A quote for both directors takes the same 60 seconds to request as a quote for one. Contact us today to discuss more!
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