Relevant Life Insurance for Directors & Employees
Relevant life insurance is a tax-efficient life insurance policy taken out by a business to cover an employee or director. The premiums are paid by the company, treated as a business expense, and the payout goes directly to the employee’s family, free of income tax and inheritance tax. It can be a cost-effective way for business owners to arrange life cover.
Why relevant life insurance makes sense for business owners
Most business owners and directors take out personal life insurance and pay the premiums from their own post-tax income. Relevant life insurance turns that on its head. The company pays, the premiums are a legitimate business expense, and the family still receives the full payout tax-free. For higher-rate taxpayers, the saving can be substantial.
What is relevant life insurance and how does it work?
A relevant life policy is a term life insurance policy taken out by an employer on the life of an employee or director. If the insured person dies during the policy term, the sum assured is paid to a discretionary trust, and from there to the employee’s nominated beneficiaries, typically their family.
Because the policy is owned by the employer and written in trust, the payout does not form part of the employee’s estate. This means it is not subject to inheritance tax, and the family receives the full amount quickly, without waiting for probate.
The cost of a relevant life policy depends on the insured person’s age, health, the sum assured, and the policy term. Because the premiums are paid by the company and qualify as a business expense, the effective cost is significantly lower than an equivalent personal policy, particularly for higher-rate taxpayers and directors drawing dividends.
- Premiums paid by the company, a legitimate business expense
- Generally not treated as a benefit in kind for the employee
- Payout is free of income tax and inheritance tax
- Normally written in a discretionary trust
- Available to employees and limited company directors
- Also available to sole directors of their own company
- Not tied to one insurer
Relevant life vs personal life insurance, the key differences
| Who pays | The employer (company) |
| Tax treatment | Business expense, not a benefit in kind |
| Payout | Tax-free via discretionary trust |
| IHT exposure | None, outside the estate |
| Who pays | The individual (post-tax income) |
| Tax treatment | No tax relief on premiums |
| Payout | Tax-free if written in trust |
| IHT exposure | Potentially liable if not in trust |
Who should consider relevant life insurance?
| Your situation | Why it matters |
|---|---|
| Limited company directors | Pay premiums through the company as a business expense, far more tax-efficient than paying personally |
| Sole directors of their own company | Even if you are the only employee, you can still take out a relevant life policy through your company, one of the most overlooked tax efficiencies for owner-directors |
| Higher-rate taxpayers | The combined NI and income tax savings can make relevant life cover cost less than a personal policy |
| Business owners wanting to protect key staff | Offer life cover as a tax-efficient employee benefit without the cost and complexity of a group scheme |
| Directors with existing personal life cover | It may be worth reviewing whether your current policy could be restructured as a relevant life policy to save tax |
| Anyone concerned about inheritance tax | Because the policy is written in trust and owned by the employer, the payout sits outside your estate entirely |
How to arrange relevant life insurance through That’s Family Finance
We keep the process simple and pressure-free. Here is what to expect from start to finish.
Initial conversation
We start with a no-obligation chat to understand your business structure, your existing cover, and what you are trying to achieve.
We research the market
We compare insurers, looking at sum assured levels, terms, and premiums for your business and your family.
We talk you through your options
We present the options clearly, explain the tax treatment, and answer any questions. You decide, in your own time, with no pressure.
We handle the paperwork
Once you are happy to proceed, we manage the application and trust documentation on your behalf, keeping you informed at every stage until your cover is in place.
Why business owners choose That’s Family Finance for relevant life insurance
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Your relevant life insurance questions answered
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Is a relevant life policy written in trust?
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Is relevant life insurance the same as death in service?
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Relevant life cover is arranged by That’s Family Finance.
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