Critical Illness Cover for Business Owners: Why Relevant Life Isn't Enough
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Does relevant life insurance cover critical illness? No. A relevant life policy only pays out on death, and most insurers also pay on diagnosis of a terminal illness. It can't include critical illness cover, so if a serious illness keeps you out of the business for months, relevant life pays nothing. Business owners usually fill that gap with key person critical illness cover and executive income protection.
Key facts
- A relevant life policy pays out on death, and on terminal illness with most insurers, but never on critical illness.
- 1 in 2 people in the UK will be diagnosed with cancer in their lifetime, according to Cancer Research UK.
- Key person insurance can include critical illness cover, paying a lump sum to the business on a qualifying diagnosis.
- Executive income protection replaces up to 80% of a director's salary and dividends while they can't work, and the company pays the premiums.
- Each policy covers a different gap, so they work alongside relevant life rather than replacing it.
Why can't relevant life include critical illness cover?
Relevant life is a death in service benefit by design. HMRC's rules for relevant life policies, summarised in its EIM15045 guidance, only allow a lump sum benefit on death. Adding any other benefit would stop the policy qualifying as relevant life, along with its tax treatment.
So a relevant life policy protects your family if you die. It doesn't protect your business, or your income, if you're seriously ill.
How likely is a serious illness during your working life?
More likely than many directors assume. Cancer Research UK estimates that 1 in 2 people in the UK will be diagnosed with cancer in their lifetime, and half of people diagnosed now survive for ten years or more. Treatment and recovery often take months.
| Condition | UK figure | Source |
|---|---|---|
| Cancer | 1 in 2 people diagnosed in their lifetime | Cancer Research UK |
| Heart and circulatory diseases | Around 7.6 million people living with these conditions | British Heart Foundation |
| Stroke | Around 100,000 strokes a year | Stroke Association |
Sources: Cancer Research UK, British Heart Foundation and Stroke Association published statistics.
Better survival rates are great news personally. Commercially, they mean the bigger risk is often not that a director dies, but that they're away for a long time and then come back.
What happens to your business during a long absence?
A long absence hits the business in three places: revenue, decisions and cash. Clients who deal with you directly may wait or move, projects slow down, and the company may still be paying you while you can't contribute. Most of the effects we describe in what happens to your business if a key person dies apply to a long illness too.
Which policies cover a director's critical illness?
Two company-paid policies fill the gap that relevant life leaves. Key person insurance with critical illness cover protects the business, and executive income protection protects your personal income.
| Policy | Pays out on | Who receives it | What it's for |
|---|---|---|---|
| Relevant life insurance | Death (and terminal illness with most insurers) | Your family, via a trust | Family financial security |
| Key person insurance with critical illness | Death or a qualifying critical illness | The company | Lost profit, interim cover, loans |
| Executive income protection | Illness or injury that stops you working | The company, then you via PAYE | Up to 80% of salary and dividends |
Source: Executive Life. Covered conditions and definitions vary by insurer.
How does key person critical illness cover work?
Key person critical illness cover pays a lump sum to the business on diagnosis of a qualifying condition, usually including cancer, heart attack and stroke. The company can use the money however it needs, as we explain in what a key person payout can be used for. Definitions differ between insurers, so the conditions covered matter as much as the price.
How does executive income protection help?
Executive income protection pays a monthly benefit to the company if you can't work, covering up to 80% of your salary and dividends, compared with typically 60% on a personal policy. Premiums qualify for corporation tax relief with no benefit-in-kind charge, subject to HMRC's wholly and exclusively rules.
Do you need both key person and income protection?
Many directors do, because they solve different problems. Key person critical illness cover gives the business a lump sum to absorb the shock, while executive income protection keeps your personal income flowing through a long recovery. Our comparison of income protection vs critical illness explains how lump sum and income cover differ.
Adding critical illness to key person cover raises the premium, and the cost depends on age, health, cover level and term. The fairer comparison is that premium against what a long absence would cost your business without it.
Executive Life is authorised and regulated by the Financial Conduct Authority (FRN 985058). We compare critical illness definitions across the market, and you can request a quote in around 60 seconds.
Frequently asked questions
Does relevant life insurance cover critical illness?
No. Relevant life insurance only pays out on death, and most insurers also pay on diagnosis of a terminal illness. Critical illness cover can't be added to a relevant life policy.
Can key person insurance include critical illness cover?
Yes. Key person insurance can include critical illness cover, paying a lump sum to the business if the key person is diagnosed with a qualifying condition. The conditions covered vary between insurers.
Who receives a key person critical illness payout?
The company receives a key person critical illness payout, not the director. The business can use it to cover lost profit, interim management or loan repayments while the director recovers.
Can a company pay for a director's income protection?
Yes, through executive income protection. The company pays the premiums and receives the benefit, covering up to 80% of the director's salary and dividends, with corporation tax relief and no benefit-in-kind charge, subject to HMRC's wholly and exclusively rules.
What conditions does critical illness cover usually include?
Critical illness cover almost always includes cancer, heart attack and stroke, plus many more conditions. Definitions differ between insurers, so compare them before choosing.
Last reviewed: October 2026. Next review: April 2027. Tax rates and thresholds are subject to change. This article will be updated following each HMRC Autumn Budget or Spring Statement where relevant thresholds change.
This article is for information purposes only and does not constitute financial advice. Tax treatment depends on individual circumstances and may be subject to change. Always seek professional advice before making financial decisions.
Written by
Alex Ogden DipFA | Director | Executive Life
Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the Walbrook Institute London, formerly known as the London Institute of Banking & Finance (LIBF), the FCA's benchmark qualification for retail investment advisers. He is authorised by the FCA, Ref: AJO01072. View the FCA register entry.