Relevant Life vs Group Life Insurance: Which Is Right for a Small Business?

If you’ve been looking into how your company can provide life cover for directors or employees, you’ll likely have come across two options: relevant life insurance and group life insurance. Both allow the company to fund life cover as an allowable business expense. Both qualify for corporation tax relief. And both mean the covered individual pays no Benefit in Kind on the premiums.

So what’s the difference, and which one is right for your business?

The short answer is that for most small businesses, relevant life is the clear choice. But it’s worth understanding why, because the distinction matters, particularly if you’ve been quoted on a group scheme and assumed it’s the standard approach for company-funded life cover.

What group life insurance actually is

Group life insurance is a single policy that covers multiple employees under the same arrangement. The employer sets a benefit level – typically a multiple of salary – and all eligible employees are covered under those same terms. A single premium covers the whole scheme. A single policy document governs everyone on it.

This is the model that large corporations use to provide death in service cover to their workforce. It works extremely well at scale. When you have hundreds or thousands of employees to cover, a group scheme is the practical and cost-effective solution; one arrangement, one insurer relationship, one administrative process.

The tax treatment mirrors relevant life. The employer pays the premiums as an allowable business expense, claims corporation tax relief, and the employees pay no Benefit in Kind. The payout, typically two to four times salary, is paid to the employee’s beneficiaries via a master trust that the insurer maintains.

Where group life falls short for small businesses

The group life model was designed for large employers. When you try to apply it to a small business, such as a director-owned limited company, a professional practice, a small team of key people, everal practical problems emerge.

Minimum membership

Most group life schemes require a minimum number of members to be viable, typically five, sometimes higher depending on the insurer and the level of cover. Below that threshold, you either can’t access a group scheme at all, or the premiums aren’t competitive because the insurer can’t spread the risk across a large enough pool.

For a single-director limited company, or a husband-and-wife business, or a small team of three or four people, this is a fundamental problem. The product simply wasn’t designed for you.

Flexibility: the one-size-fits-all problem

Group life schemes can be organised into categories. A director category might receive five times salary, a management category three times salary, all other employees two times salary. While this categorisation is possible, it creates two problems that relevant life avoids entirely.

The first is that within each category, everyone gets the same multiple regardless of their individual circumstances. One director might need £2 million of cover to adequately protect their family. Another might need £800,000. Under a group scheme both receive five times their respective salaries, one is overinsured, the other is underinsured, and neither has cover that actually reflects what they need.

The second is that cover levels are tied to salary, which for directors who draw a modest salary and top up with dividends may significantly understate the real level of cover needed. Relevant life policies are arranged on an individual basis with a cover level that reflects total remuneration, salary, dividends, and other benefits and can be set at whatever level the individual actually needs rather than whatever the scheme formula produces.

Portability – a critical difference

Under a group scheme, the policy belongs to the employer. If a director or employee leaves the business, their cover ends and they leave without any insurance in place. At the point they need to arrange new cover they will be older than when the original policy was taken out, which means the premium will be higher. If they’ve had any health issues during the time they were covered under the group scheme – a common occurrence over a career of any length – they may find new cover is more expensive still, or in some cases impossible to obtain at standard terms.

This is one of the most significant and least discussed drawbacks of group life insurance for directors. The cover exists while you’re employed. The moment that changes, whether through choice, a business sale, or any other circumstance, the cover disappears and you’re back to square one, potentially in a worse position than when you started.

With a relevant life policy the position is completely different. Because the policy is written into an individual discretionary trust from the outset, many insurers include conversion options that allow the policy to be converted into a personal policy if the individual’s circumstances change; a business sale, a change in employment, or the winding up of the company. The cover can follow the individual rather than ending with the employment relationship. The original underwriting applies, so any health conditions that have arisen during the policy term don’t affect the ability to continue cover.

For a director who has built a business over many years and whose health profile may have changed during that time, this portability is not a minor detail. It could be the difference between having cover and not having it at a point in life when arranging new cover would be significantly more difficult and expensive.

One more scenario worth considering: the business sale

It’s worth flagging a scenario that directors often don’t think about until it’s too late. If you sell your business, a group life scheme ends and you walk away from the transaction without any life insurance in place. If you’re in your fifties, have had any health issues, or have simply not needed to arrange personal cover because the group scheme covered it, finding equivalent cover at that point could be significantly more expensive than it would have been years earlier.

A relevant life policy arranged correctly from the outset, with a conversion option in place, means that a business sale doesn’t necessarily end your cover. The policy can be converted to a personal arrangement, preserving the underwriting and keeping the cover in place through what can otherwise be a very disruptive transition.

Where the tax treatment is the same

On the core tax question, corporation tax relief on premiums, no Benefit in Kind for the covered individual, tax-free payout to beneficiaries, the two products are equivalent. This is by design. Relevant life was introduced in 2006 specifically to extend the tax treatment of group life schemes to smaller businesses that couldn’t access them.

So if someone is comparing the two products purely on tax efficiency, the answer is that there’s no meaningful difference. The tax treatment is the same. The difference is in the structure, the flexibility, the portability, and the practical suitability for businesses of different sizes.

Which is right for your business?

For a single director or small team, relevant life wins on every practical measure: no minimum membership, individual tailoring, individual trust, genuine portability, and the same tax treatment as a group scheme.

For a larger employer looking to provide standardised cover across a workforce of fifteen or more people, a group scheme may start to make administrative sense – one arrangement covering everyone rather than multiple individual policies to manage.

For a business in between, the right answer may be a combination. Relevant life for the directors and senior people who need tailored, higher levels of cover and who need the portability that comes with an individual policy. A group scheme for the wider workforce where standardised cover is appropriate and the individual portability point is less critical.

At Executive Life we look at both options for every client and recommend the approach that fits the business, including hybrid arrangements where that’s the right answer.

The practical question

If you’re the director of a small limited company and you’re wondering how to arrange life cover for yourself and any co-directors, the answer is almost certainly relevant life. It gives you the same tax efficiency as a group scheme, with individual policies tailored to your specific circumstances, no minimum membership requirement, and the flexibility – and portability – to arrange exactly the level of cover each person needs, in a way that stays with them whatever happens to the business.

If you have employees you want to cover as well, it’s worth a conversation about whether individual relevant life policies or a group arrangement – or both – makes most sense for your specific situation.