It may suit an employer that wants to fund individual death-in-service cover for an eligible employee or director. Favourable tax treatment may apply when the relevant conditions are met, but the arrangement brings employment, trust and administrative requirements.
When might relevant life insurance be worth considering?
It may be worth investigating when:
- a limited company covers an employee or qualifying office-holding director;
- an employer wants individual rather than group death-in-service cover;
- the benefit is intended for permitted individuals or charities rather than the company;
- the business is too small for, or does not use, a group life scheme;
- different employees require different cover amounts; or
- existing group provision does not meet the intended need.
It may not fit when the person has no qualifying employment or office-holder relationship, the employer needs to protect its own finances, the objective is to fund a share purchase, joint-life cover is required or the trust duties are unsuitable.
A protection specialist can explain policies and the application. Qualified advisers must confirm tax and trust effects.
How does relevant life insurance work?
The arrangement connects the employer, person insured, insurer, trustees and beneficiaries. Understanding each role helps prevent relevant life cover from being confused with ordinary personal insurance or business protection.
The usual sequence is:
- The employer establishes the arrangement and normally pays the premiums.
- One employee or qualifying director is insured.
- The employer and proposed trustees complete the insurer's policy and trust documents.
- The insurer assesses the application and confirms the cover and ownership structure.
- Following a valid claim, the insurer pays the person or trustees entitled under the policy. The trustees then administer the benefit under the trust terms.
The company is not normally the ultimate beneficiary. Confirm the actual route using the selected policy and trust documents.
Who owns and pays for the policy?
The employer normally establishes and funds the arrangement. The insurer's process may issue the policy to trustees or require it to be assigned to them. The documents should identify the policy owner, premium payer and person insured consistently because those roles affect control, changes and claims.
Who receives the payout?
The beneficial recipients must be individuals or charities within the relevant statutory and policy conditions. The provider's trust may use a narrower class and give trustees discretion over distribution. A letter of wishes can guide them but may not bind them. A policy intended to benefit the employer or repay its borrowing is a different protection need.
Do not assume every payout is automatically outside the estate or free of tax. Ownership, correct trust completion, administration, beneficiaries and the circumstances at death can affect the result.
Is relevant life insurance the same as death in service?
It is a form of individual employer-funded death-in-service protection, but it is not the same structure as a registered group life scheme. A relevant life policy covers one employee; a group scheme covers a defined group under scheme rules.
Who may be eligible for relevant life insurance?
Potential eligibility depends on the person being an employee or qualifying office holder of the employer, the legal and remuneration structure, provider criteria, policy design and intended tax treatment. Being a shareholder, equity partner or LLP member is not sufficient by itself.
| Person or structure | General position | What needs checking |
|---|---|---|
| Employed director or owner-director | May be eligible where the employer arranges and funds the cover | Office-holder or employment status, remuneration, provider rules and business purpose |
| Employee | May be eligible; the product is not limited to directors | Employment evidence, financial underwriting and consistent benefit decisions |
| Sole trader personally | Not ordinarily eligible because the person and business are not separate legal persons | Personal life insurance may be more appropriate |
| Employee of a sole trader | May be eligible | Genuine employment, provider rules and expected tax treatment |
| Partner or LLP member | No universal answer | Legal and employment status, remuneration and provider criteria require professional assessment |
| Shareholder | Shareholding neither proves nor prevents eligibility | Employment or office-holder status and the actual purpose of the cover |
Contractors and one-person companies can investigate relevant life insurance, but their structure still requires assessment. See life insurance for company directors for the wider options. If the purpose is to fund a transfer of shares after death, consider shareholder protection instead.
What conditions can relevant life insurance need to meet?
The commercial product name is not enough to establish its legal or tax treatment. For the commonly marketed single-employee form, the policy and wider arrangement need to satisfy defined conditions.
The policy must be designed to pay a capital benefit on the death of one insured person in the stated circumstances. Its specified maximum age at death must not exceed 75. It must have no surrender value, apart from a permitted refund for an unused premium period, and it must provide only permitted benefits.
Beneficial recipients of the death benefit must be restricted to individuals or charities, and tax avoidance must not be a main purpose of the policy or arrangement. Additional benefits, trust wording and the surrounding facts must therefore be checked, not just the policy label.
What are the potential tax benefits of relevant life insurance?
A correctly established relevant life policy may receive favourable treatment, but this depends on the statutory conditions, business purpose, policy structure and individual circumstances. The company and employee should obtain current tax advice before relying on any expected benefit.
Four separate questions must be reviewed. Passing one test does not automatically answer the others.
| Tax question | What it means in practice |
|---|---|
| Is it a statutory relevant life policy? | The policy benefits, beneficiaries and wider purpose must meet the relevant conditions. |
| Is the premium deductible? | The employer must establish whether the expense was incurred wholly and exclusively for its trade. |
| Does the premium create an employment tax charge? | The limited exemption for death or retirement provision and any other charging provisions must be considered. |
| How are the trust and proceeds treated? | Income Tax, Inheritance Tax, trust charges and estate treatment are separate issues. |
Is relevant life insurance Corporation Tax deductible?
Relevant-life status does not guarantee Corporation Tax relief. The employer may be able to deduct premiums when the expense is incurred wholly and exclusively for its trade. For a shareholder-director, the accountant should consider whether it forms part of genuine remuneration and whether a non-trade or shareholder purpose exists.
Is relevant life insurance a benefit in kind?
Employer expenditure on death or retirement provision may fall within the limited exemption in section 307 ITEPA 2003. It does not prevent a charge under every other provision. Mixed or additional benefits need separate review because qualifying and non-qualifying costs may require apportionment.
Are National Insurance contributions due?
Employer contributions to an employer-financed retirement benefits arrangement may be disregarded for Class 1 National Insurance under the applicable rules. Confirm Class 1 and Class 1A treatment separately, particularly where the arrangement includes additional benefits.
Is the payout tax free or outside the estate?
A correctly structured claim is commonly intended to reach beneficiaries without becoming part of the insured person's estate. That outcome is not automatic. The policy, trust, premium funding and administration matter, while Income Tax, Inheritance Tax and trust charges remain separate questions.
A discretionary trust can potentially fall within the relevant-property regime, which includes possible ten-year and exit charges. Trust registration must also be checked. The trustees should take advice based on the actual policy and timing of any distribution.
What happened to the pension lifetime allowance?
The pension lifetime allowance was abolished on 6 April 2024, so older claims about avoiding it are no longer a current advantage. Relevant life insurance is not a registered pension scheme, and current pension lump-sum allowances should not be presented as automatically applying to its payout.
Why is a relevant life policy commonly written in trust?
The trust provides a structure for identifying potential beneficiaries, appointing trustees and administering the policy benefit. The provider's approved trust and policy documents determine the available arrangements.
A trust is not simply a tax label or a form to complete once and forget. It creates responsibilities that can continue throughout the policy and claim.
| Role | Main responsibility |
|---|---|
| Employer | Establishes and funds the arrangement |
| Policy owner | Holds the contractual rights identified in the policy documents |
| Trustee | Keeps records, assists with a claim and administers trust property |
| Beneficiary | May receive a benefit if permitted by the trust and trustees' decision |
The permitted appointments depend on the provider's trust, policy wording and applicable law. Trustees should keep documents and contact details current, consider any letter of wishes and record changes affecting the policy. They must administer trust property for the permitted beneficiaries, not treat it as their own.
Do not change trustees, beneficiaries, ownership or trust terms without checking the legal and tax effects. Some decisions can be difficult or impossible to reverse.
Relevant life insurance versus personal life insurance
Personal life insurance is the closest alternative. The better structure depends on who should own and fund the cover, the employee or office-holder status, intended recipient, flexibility and administration, not tax treatment alone.
| Feature | Relevant life insurance | Personal life insurance |
|---|---|---|
| Policy owner | Employer or trustees, as specified by the policy and trust process | Individual or trustees, depending on how it is arranged |
| Premium normally paid by | Employer | Individual from personal funds |
| Person covered | One employee or employed director | One or more people, depending on the product |
| Employment relationship | Fundamental to the arrangement | Not required |
| Intended benefit | Employee's permitted beneficiaries | Recipient determined by ownership, trust or estate arrangement |
| Trust | Commonly required by the provider and integral to the intended beneficiary and tax structure | Optional in many circumstances |
| Administration | Employer, insurer and trustees all have defined roles | Usually simpler, although a personal trust adds duties |
| Tax position | Potentially favourable if conditions are met | Premiums normally paid from personal income |
| Joint-life flexibility | Generally unsuitable | Commonly available |
| Leaving employment | Provider-specific continuation, assignment, transfer or cessation options may apply; original tax treatment is not guaranteed | Usually independent of employment |
Relevant life insurance may fit an employed director, an employer wanting individual death-in-service cover or a business without an appropriate group arrangement. Personal cover may fit joint-life needs, people who want independence from employment or those who prefer simpler ownership. Compare the purpose, recipient, term, flexibility, administration and total cost rather than assuming either route is better.
Should an existing personal policy be replaced?
Do not cancel existing cover merely because employer-funded cover appears attractive. Compare the premium basis, definitions, exclusions, term, trusts and existing underwriting terms. The new policy should be underwritten, accepted and in force before the old policy ends.
Relevant life insurance versus group life insurance
Relevant life insurance covers an individual employee, while group life insurance covers a defined group under a scheme. Neither structure is automatically better for every employer.
Compare employee numbers, eligibility rules, consistency of benefits, administration, portability and cost. There is no universal minimum number of employees for group cover. See the group life insurance guide if that destination is live.
Relevant life insurance versus key person and shareholder protection
The purpose and intended recipient separate these arrangements. Choosing by the identity of the person insured can produce the wrong policy.
| Cover type | Primary purpose | Intended recipient or use |
|---|---|---|
| Relevant life insurance | Individual death-in-service benefit | Employee's beneficiaries, commonly through trustees |
| Key person insurance | Protect business finances after losing an important person | Business |
| Shareholder protection | Support a purchase or transfer of shares after death or serious illness | Shareholders or business parties under the arrangement |
If the employer needs compensation for lost profit, recruitment costs, debt pressure or disruption, investigate key person insurance. If the objective is to fund or facilitate a transfer of shares, investigate shareholder protection insurance. Relevant life insurance is not a substitute merely because the person insured is a director.
What are the disadvantages of relevant life insurance?
Relevant life insurance can solve a specific protection need, but the restrictions and administration deserve the same prominence as the possible tax advantages.
Potential disadvantages include:
- more administration and trust responsibility than straightforward personal cover;
- dependence on a qualifying employment or office-holder relationship;
- possible complications when employment, ownership or the company changes;
- restrictions on benefits and beneficiaries needed to preserve the intended treatment;
- no usual joint-life option and provider-specific cover limits;
- medical, lifestyle, occupational and financial underwriting; and
- tax outcomes that require separate professional confirmation and may change.
What happens when employment ends?
Continuation, assignment, transfer, replacement or cancellation may be possible, but the options depend on the policy, provider and new circumstances. If employment ends or the company closes:
- Ask the insurer for the available options and deadlines.
- Confirm who would own the policy, pay the premium and administer the trust.
- Review the legal, tax and suitability consequences before making a change.
The former employer cannot be assumed to keep paying, and the policy does not automatically move to the employee or a new company. A permitted transfer may still change the expected tax treatment. Complete any required ownership, trust and payment changes before existing cover lapses.
Can relevant life insurance include critical illness cover?
Standard relevant life insurance focuses on a death benefit. Some policies include terminal-illness acceleration or ancillary services, but critical illness or disability benefits are not universal and can have different tax consequences. Review the exact wording and compare personal or business alternatives if a living benefit is the main need.
How much relevant life insurance can you get?
There is no universal maximum. The insurer may consider remuneration, dividends where its method permits them, age, term, existing cover, employment status and the financial justification. One provider's salary multiple is not a market rule, and the amount offered can differ from the amount requested.
What affects the cost?
The premium can depend on age, health, medical history, smoking, vaping or other nicotine use, occupation, hazardous activities, amount, term and product features.
Expected tax treatment can affect the economic comparison with personal cover, but it does not change the insurer's quoted premium. Compare like-for-like benefits and assess tax assumptions separately.
What information is needed for a quote?
Prepare:
- the employer's name, structure and trading information;
- the employee or director's status and remuneration;
- the cover purpose, amount, term and existing protection;
- the intended beneficiaries and proposed trustees; and
- the health, occupation and lifestyle information required for underwriting.
Use accurate records and check which organisation will receive personal information.
How do you set up relevant life insurance?
Build the arrangement around its protection purpose and legal roles before comparing price. This reduces the risk of choosing a policy with the wrong beneficiary or tax assumptions.
- Define the protection purpose and intended beneficiaries.
- Confirm the employment and business structure.
- Compare relevant life insurance with suitable personal, group and business alternatives.
- Obtain provider terms and a quote.
- Obtain tax, accountancy or legal confirmation where required.
- Complete the policy, trust and underwriting process. Do not cancel existing cover until the replacement is accepted and in force.
- Record who will review the arrangement after employment, company, ownership or beneficiary changes.
A protection specialist can explain the policies and application process. Tax treatment and trust effects require confirmation from appropriately qualified advisers.
Frequently asked questions about relevant life insurance
These questions address practical details that are not developed in the main decision guide.
Can relevant life insurance cover more than one employee?
An employer may arrange separate policies for eligible individuals. This is not the same as a joint policy or one group scheme. Provider and tax requirements apply to each arrangement.
Does a director need to be paid through PAYE?
A PAYE salary is not the only consideration. Employment or office-holder status, remuneration, provider rules and intended tax treatment all matter. The provider and employer's accountant should confirm the proposed arrangement.
Does relevant life insurance have a cash-in value?
It is normally protection rather than an investment and generally has no cash-in value. Confirm this against the selected policy document.
What happens if the employer stops paying premiums?
Cover may lapse after any applicable grace period unless an available continuation or transfer route is completed. Check the policy terms before stopping premiums, and do not cancel existing protection until any replacement cover is in force.
