Small companies with only one or two employees may not have access to, or may not need, a traditional group life insurance scheme.
This means employees may otherwise have to purchase their own policies and pay the costs from post-tax income. Alternatively, they may decide not to make any provision at all.
However, if you own or work for a limited company, you can take out life insurance through your business.
As a result, you can benefit from tax relief and significant savings.
This is where the concept of relevant life insurance comes in.
What is relevant life insurance?
This is a type of life insurance policy for an individual employee, including the business owner. It is not available to individuals taxed as ‘self-employed’, i.e. sole traders.
The policy premiums are paid by the company and held in a discretionary trust.
The trust pays a lump sum to the individual or their beneficiaries if the individual dies while employed.
Some policy providers also pay out if the individual is diagnosed with a terminal illness during the policy term.
Provided the policy meets the relevant life conditions, the premiums are normally not treated as a taxable benefit for the employee. See HMRC’s guidance at EIM15045.
Separately, the company may be able to claim Corporation Tax relief on the premiums where they are incurred wholly and exclusively for the purposes of the trade.
What’s in it for you?
Taking out a relevant life policy is a smart way to buy life insurance, as HMRC doesn’t normally consider it to be a benefit-in-kind, provided the policy meets the relevant life conditions.
Contributions to the relevant life plan form part of an employee’s remuneration package, which may also include other benefits, such as contributions to an executive pension.
As a result, the employee doesn’t pay income tax on the value of the benefit, and the company doesn’t have to pay employers’ National Insurance contributions on the premium.
Combined, these measures represent a significant saving over the life of a policy, especially for higher-rate taxpayers.
Tax efficient for the company and beneficiaries
Paying for life cover via your company has several tax benefits:
- The company claims the premium costs against its Corporation Tax bill at the applicable rate, provided the usual tax conditions are met.
- The employee (often a director) does not need to pay for cover from their post-tax income. This can result in a significant saving compared to the cost of buying personal life insurance (see below).
- This type of policy is also tax-efficient for beneficiaries, as a qualifying lump sum is normally paid free of income tax and, if the trust is set up correctly, is typically outside the employee’s estate for Inheritance Tax purposes.
- Relevant life insurance is not a registered pension and does not use up the employee’s Annual Allowance.
Non-relevant life vs. relevant life policies – the true cost
Here is a table comparing the post-tax cost of a £100 per month policy: first, funded from post-tax salaried income; second, funded as a business expense via a limited company.
| Traditional Life Insurance | Relevant Life Insurance | |
|---|---|---|
| Cost to Employee | ||
| Monthly Premium | £100 | – |
| Employee NICs (2%) | £3.45 | – |
| Employee Income Tax (40% band) | £68.96 | – |
| Gross Earnings Needed | £172.41 | |
| Cost to Employer | ||
| Policy Cost | – | £100 |
| Employers NICs (15%) | £25.86 | – |
| Corporation Tax Saved (19%) | (£37.67) | £19 |
| Tax Adjusted Cost | £160.60 | £81 |
In this example, the potential post-tax saving for a higher-rate taxpayer is around 50%.
The figures are for the 2026/27 tax year and assume a higher-rate taxpayer above the Upper Earnings Limit and a company paying Corporation Tax at 19%. Different tax rates or remuneration methods will change the result.
Try our relevant life savings calculator here.
Who is it suitable for?
Relevant life insurance may be suitable for the following:
- Those companies that don’t run a group life scheme but wish to provide insurance for individuals.
- Employees and directors who fall within an insurer’s age limits. These vary between providers, but policies are commonly available from adulthood into the early 70s.
- Businesses that want to provide higher earners with additional life insurance without using a registered pension scheme.
- Individuals who want the company to top up benefits from an existing group life scheme, which may only provide a multiple of salary.
How much cover do I need?
The amount of cover available depends on the insurer and your age.
Some insurers may offer cover of up to around 30 times remuneration for younger applicants, with lower multiples applying as you get older.
The calculation may take into account salary, regular dividends and other remuneration, depending on the insurer’s underwriting rules.
For example, if you’re aged 40-49, a provider may offer a multiple of up to around 25 times your remuneration.
For those aged 60 and above, the available multiple is usually lower.
Read more here: how much relevant life cover do you need?
What happens if you leave the company?
If you leave the company, the policy can be transferred to a new employer, provided the new employer is happy to continue paying the annual premium.
A new discretionary trust may need to be created, with the new employer as a trustee.
The policy can also sometimes be transferred to your name alone, and you would be responsible for paying the premiums.
Before exercising this option, you should speak to a financial adviser or accountant, as you may no longer qualify for the same level of tax benefit.
Other conditions may also apply. Some providers require any transfer of a relevant life policy to be completed within a specified period, often around 90 days after leaving your previous employer.
How to set up relevant life insurance
The company needs to agree to pay the annual premiums and the insurance must be written in trust.
The company is the policy owner; the individual is the person covered by the policy and will need to give details of their medical history, general health, occupation and earnings.
Our long-term partner, Broadbench, can provide you with a no-obligation quote, and answer any questions you have about setting up a life insurance policy via your own limited company.
Broadbench specialises in providing advice for company directors, and has set up life cover policies for hundreds of our visitors.
Simply fill in this form, and the team will get right back to you.
Get a Relevant Life quote
Complete the form below and an FCA-regulated adviser from Broadbench Ltd (FCA No. 590288) will get in touch to discuss your requirements and explain the options available from leading insurers.
For in-depth guides to relevant life, visit our microsite at RelevantLifeInsurance.co.uk.