Relevant Life Insurance: The Smart Way to Protect Your Family

As Limited Company Directors , ensuring your loved ones are financially secure in the event of your death is essential. However, many directors are unaware of a powerful financial planning tool available exclusively to businesses: Relevant Life Insurance.

This lesser-known policy allows companies to provide death-in-service benefits to employees — including directors — in a tax-efficient manner. It’s particularly valuable for directors of small or single-director companies who don’t have access to group life cover.

What is Relevant Life Insurance?

Relevant Life Insurance is a life insurance policy taken out and paid for by a limited company on behalf of an employee or director. If the insured person dies (or is diagnosed with a terminal illness) while employed, the policy pays out a lump sum to their beneficiaries via a discretionary trust.

Key Benefits for Directors and Their Companies

1. Corporation Tax Deductibility

The premiums your company pays for the policy are typically treated as an allowable business expense. This reduces your Corporation Tax liability.

Example:

• Annual premium: £1,000

• Corporation Tax rate: 25%

• Tax saving: £250

• Net cost to company: £750

2. No Benefit-in-Kind Tax for the Director

Unlike regular life insurance paid personally, Relevant Life premiums are not treated as a benefit-in-kind. That means:

• You don’t pay Income Tax or National Insurance on the premiums.

• There’s no P11D reporting required.

• This makes it vastly more tax-efficient than a personal policy funded from net income.

Worked Example: Personal Life Insurance (paid from net income):

• Gross salary required to fund £1,000 premium (assuming 40% taxpayer): ~£1,667

• Income Tax & NI: ~£667

• Net cost: £1,667

Relevant Life Policy (paid by company):

• Gross cost to company: £1,000

• Corporation Tax relief: £250

• Net cost: £750

• Savings vs personal: £917 per year

3. Inheritance Tax Protection

The policy is held in a discretionary trust, which means:

• The pay-out doesn’t form part of your estate for Inheritance Tax (IHT) purposes.

• Funds go directly to your beneficiaries, typically within weeks.

• This avoids probate delays and ensures your loved ones receive the full benefit swiftly and tax-free.

4. Ideal for Small Companies and High Earners

Group life policies are often only accessible to larger companies. For small businesses or sole directors, Relevant Life is a rare opportunity to:

• Offer a death-in-service benefit.

• Protect your family using company money.

• Keep your personal income intact.

Real-World Scenario: Meet Sarah, a Tech Consultant

Sarah is the sole director of a limited company (40% taxpayer). She wants £500,000 life cover to protect her family. Her options:

Option 1: Personal Policy

• Monthly premium: £83.33 (£1,000 annually)

• Requires £1,667 gross salary

• £667 lost to tax/NI

• Net cost to her: £1,667

Option 2: Relevant Life Policy

• Same cover

• Company pays £1,000

• Corporation tax relief of £250

• Net cost to company: £750

Outcome: By using a Relevant Life Policy, Sarah saves £917 per year — and her family would receive the full pay-out without it being subject to Inheritance Tax.

Other Considerations

• Age and health: The younger and healthier you are, the cheaper the premiums.

• Trust setup: Most providers include the discretionary trust at no extra cost.

• HMRC Compliance: Policies must meet specific conditions to qualify. A good adviser ensures compliance with HMRC rules (per ITEPA 2003, s.393B).

Conclusion: A No-Brainer for Most Directors

Relevant Life Insurance is one of the most tax-efficient, cost-effective ways for directors to provide life cover. With substantial savings in Income Tax, National Insurance, and Corporation Tax — plus the added estate planning benefits — it often beats a personal policy hands down.