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How Relevant Life Cover Saves Your Company Tax

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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What Are The Main Features Of Relevant Life Insurance?
  • Find out how one client saved £20,787 with relevant life insurance
  • Totally tax free benefit with no benefit in kind tax
  • Save on national insurance contributions
  • Corporation tax relief on relevant life insurance premiums
  • Allowable business expense with a personal benefit
Man contemplating Relevant Life Insurance
100% Corporation Tax Relief

How much could a company director save?

A relevant life plan is for UK based tax-payers and is specifically for limited company owners and equity partners. A Limited liability partnership or sole traders cannot use them and must opt for a standard life insurance policy or key man or business protection.

Save 67% with Relevant Life Insurance

Savings for a company director are typically 62%, made up of a mixture of income tax, corporation tax and national insurance contributions. The final saving will depend on whether the insured is a basic-rate taxpayer or a higher/additional rate. There is also a saving in national insurance contributions when using a relevant life plan.

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Case Study: Company Director

£20,787 Saving With Relevant Life Insurance

Mr Jones is the Director of Jones & Co Limited and is looking for a £1,000,000 life insurance policy. He could pay for a policy personally from taxed income, or he could pay for a relevant life cover through the company. He is a higher-rate tax payer.

The premium for both types of policy is identical and both are offered by L&G in this example. The premium for £1,000,000 cover is £85 a month and the policy will last for 20 years.

If Mr Jones needs to withdraw £85 net a month from his company to pay for the premium on a personal policy, the cost to the company would be £155.46. The increased costs take into consideration the corporation tax and dividend tax paid by the company and Mr Jones to receive a net £85.

If the premium was paid by the business via relevant life cover, then the business would receive corporation tax relief on the £85 a month premium. This would reduce the real cost to £68.85 and save Mr Jones £20,787 over the lifetime of the policy.

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What's possible with relevant life

Limits and restrictions to a relevant life insurance

There is no maximum amount of cover or maximum limits, subject to the net income of the insured, relevant life cover is not counted towards pension lifetime allowance if the insured has a registered pension scheme in place. Relevant life cover isn't currently part of pension legislation but may be introduced again.

Relevant Life Insurance or Shareholder Protection?

Relevant life insurance is also not to be confused with shareholder protection insurance. Shareholder protection is a policy that is used to buy shares back from a deceased shareholders estate in the event of their death. The tax treatment is different so please consult one of our experts who will be happy to help.

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Client Reviews

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Smooth process, easy to deal with and most importantly they saved me a lot of tax by switching my policy to one that could be paid for by the business.

James Tonry
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Recently used them for relevant life and income protection. Professional and informative.

Ross Hutchinson
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I set up shareholder protection policies for me and my business partners through Executive Life. They found us competitive quotes and the process was swift. I would highly recommend to other company directors.

David J
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Executive Life helped me find the best deal for my life insurance policy and also my income protection policy. It was very easy and the process took no time at all - I would highly recommend them!

George Mitchell
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Very happy with the service and process I went through. They explained how the income protection policy worked and how it would be tax efficient for me through my limited company.

Jodie Newell
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Financial protection for your employees as well

Relevant life insurance as employee benefits?

Employees don't need to be part of a group life scheme to get life insurance. They can also use relevant life cover as a form of death in service benefits.

Details like the employee's age, employee's remuneration, and even life expectancy will all be considered when providing benefits of relevant life insurance.

There is no tax liability or change to the net income of the employee. The life insurance doesn't count towards their pension lifetime allowance, and the benefit won't be counted towards the deceased's estate.

This matches the same benefits and tax benefits of a group scheme with benefits paid to the employee's family when the person covered dies.

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Employee benefit of relevant life insurance
Still the same tax efficiency

Employee relevant life insurance and inheritance tax

The relevant life plan is inheritance tax-free as it is left into a relevant life trust. The lump sum benefit payable isn't classed as tax avoidance for tax purposes and is usually left into a discretionary trust. The business can still claim tax relief on the premiums paid as they are classed as a business expense.

Relevant life insurance rules

Relevant life policies do not have a surrender value. The policy is cancelled, and the cover ceases if it is cancelled. The life insured needs to be a UK resident employee or director.

The company also has to be a UK-resident business. It is essential to note the lack of surrender value as this had been a benefit of relevant life cover in the past.

Relevant life cover terminal illness
More than just a death policy

Terminal illness cover

A Relevant Life Plan usually also offers terminal illness cover. Terminal illness cover is the same as life cover, with the lump sum paid to the deceased's estate, and has the same tax benefits for the business and life insured. However, the life policy is paid out post-death.

Either way, Relevant Life Plans are always paid into a relevant life trust where any lump sums paid on a valid claim would not be counted as part of the deceased estate for inheritance tax purposes.

The purpose of a relevant life plan is not to avoid tax but to obtain life insurance in a cost-efficient way.

Relevant life cover HMRC approved
HMRC qualifying expense

Corporation tax advantages

Relevant life insurance is highly tax-efficient. HMRC have agreed that it is an allowable business expense, so corporation tax relief can be claimed. Relevant life plans are a unique kind of life cover that mirrors a death-in-service benefit for employees and, as such, is treated tax efficiently by HMRC.

Another life insurance policy that has the same tax benefits is executive income protection. This policy offers different benefits and work really well in conjunction with relevant life cover.

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Tax efficient life cover

Reduced income tax and national insurance contributions

When a policy is paid for personally, the life assured will pay a national insurance contribution on the income used to pay the premiums. This is not the case with a relevant life plan, and the premiums are paid for by the business, even though the benefit is personally for the insured person's family.

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Use a expert

Taking professional advice

The services of a financial adviser may prove cost-effective when finding the right policy as they can compare the entire life insurance market for you and find the right relevant life plan. They will be used to dealing with death in service benefits and also have a clear understanding of pensions legislation and tax implications, ensuring your policy doesn't cunt as a benefit in kind.

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Life cover only and no critical illness

Relevant life insurance must only provide life cover

Relevant life insurance is a death-only benefit. This means it does not include critical illness cover. Aviva offers a policy that has some additional cover for serious illnesses. However, the caveat is that the insured cannot return to work in the future, which could be a problem for modern business owners and entrepreneurs.

Additional feature such as critical illness cover can be added to a key person insurance. The tax treatment and use of the policy differs from relevant life cover so ask one of our team how you can get critical illness cover using key person.

Relevant life insurance man wondering is this the right choice
Making the right choice

Is relevant life cover right for your company?

Relevant life cover is the right kind of policy for the company, primarily due to the tax relief. The real question is whether relevant life insurance is right for you or even your employees. In most cases, it can save tax on multiple levels, but always consult a financial adviser before committing to a policy.

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Comparing premiums

Is relevant life cover the same price as personal life cover?

Both kinds of insurance are offered, but the same insurers and premiums are identical when quoted on the same day by the same person. The insurers do not charge a premium due to the tax treatment; both premiums are the same.

Can a relevant life policy be transferred?

Yes. One of the great things about relevant life cover is that it can be converted into a personal policy should the director sell the business or an employee leave. This ensures that you will always have access to life insurance at the right premium instead of having to change insurers in future when you are older, and premiums are more expensive. 

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What are the next steps?

Finding the right relevant life insurance for you and your company can be difficult. There are twelve primary insurers, and obtaining quotations from all of them takes time. You need to know which insurers are more friendly towards things like BMI or minor medical conditions.

At Executive Life, we specialise in finding the right policy for you. We will show you quotations from every insurer in the market so you can choose the right cover for you.

We will also complete all of your application documentation over the phone and save you the hassle of multiple paper application forms and endless admin. Our team will cover all of that for you.

Other Broker Services

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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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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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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.

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Whole Life Insurance

Whole life insurance essentially is just that - it is a life insurance policy that covers the remainder of your life, as long as you keep paying the premiums. These policies can be very helpful for long-term shareholders who choose to keep their shares past the age of 75, when getting most other insurance cover may be difficult.

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Ready To Get Cheaper Business Life Insurance Premiums?

Ready to start getting cheaper business life insurance premiums? Contact our team of dedicated life insurance advisors and wealth managers today to arrange your free consultation.

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