If your business is seeking a tax-efficient way to financially protect employees' loved ones, relevant life insurance may be the solution. Here, we’ll explain what relevant life insurance is, how it works and differs from standard life insurance, the tax advantages, and where to get accurate comparison quotes for UK providers.
What is relevant life insurance?
It’s a type of life cover that an employer (including your own limited company) can take out on behalf of an employee or director. The policy pays out a lump sum to the employee’s family or beneficiaries if they pass away during the term.
How does it work?
It’s designed for small businesses, company directors, and contractors who may not have access to group life schemes typically offered by larger employers. Here’s a simple breakdown of how it works:
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The company or business pays the premiums for the policy.
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Premiums are usually considered a tax-deductible business expense.
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The policy is written into a trust from the outset, ensuring payouts go directly to the family or chosen beneficiaries in a tax-efficient manner.
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If the insured person dies (or in some cases, is diagnosed with a terminal illness), the policy pays out a tax-free lump sum.
Unlike shareholder protection or key person insurance, the payout does not go to the business; it goes to the employee’s beneficiaries (usually their family).
Who is it for?
Relevant life insurance is most commonly used by:
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Directors of limited companies: You can arrange cover through your business, making the premiums tax-deductible and avoiding them being treated as a benefit in kind.
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Contractors and freelancers: If you operate through a limited company, you can use relevant life insurance to protect your family in a highly tax-efficient way.
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Small businesses: Offering relevant life insurance to key staff can be an attractive perk, especially if you don’t have (or need) a group protection or life insurance scheme.
Difference between relevant life insurance vs life insurance
Here’s a quick overview of the key differences between life insurance and relevant life insurance:
|
Feature |
Life Cover |
Relevant Life Cover |
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Who pays the premiums? |
You pay personally from your net income (after tax). |
Your business pays, and premiums are usually treated as an allowable business expense by HMRC. |
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Tax treatment of premiums |
No tax advantage, you pay from income that’s already been taxed. |
Usually tax-deductible for the business. Not treated as a benefit in kind, so no income tax or National Insurance. |
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Who can take out a policy? |
Anyone - individuals, employees, or self-employed. |
Only available for employees or directors of a limited company. |
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Must it be written in trust? |
No (optional) |
Yes (to secure the tax advantages) |
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Who receives the payout? |
Your chosen beneficiaries (family). |
Paid into a trust for your beneficiaries, usually inheritance tax-free as it falls outside your estate. |
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When does the policy end? |
Until the end of your policy term (or whole of life, if chosen). |
Usually ends if you leave the company or the business ceases operations. |
Best UK relevant life insurance providers
The right insurance provider to use will largely come down to how each of their relevant life insurance policies suits your business protection needs. Here are a few examples of popular UK insurers and what they offer:
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Aviva: You get a few flexible options if you set up a policy with Aviva. For example, when selecting your policy term and cover, you’re able to choose between level or increasing cover, and you can add on critical illness cover. You also get free life cover up to £1 million during the application process.
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Legal & General: With L&G, the relevant life insurance policies must be placed into a Relevant Life Plan Trust to maintain the tax-efficient benefits. All plans must end by the time the employee being covered reaches 75. The maximum payout depends on your age and usually is up to 25 times your salary, but starts lowering after you reach 50.
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Vitality: If you get a relevant life cover policy with Vitality, along with picking between guaranteed or reviewable premiums, you’re also able to opt for level cover or indexed cover (rising in line with inflation). Like with other policies, you’ll need to place the policy in a discretionary trust. Vitality also offers various lifestyle perks and discounts for employees.
How to get an online quote comparison
If you’re looking to compare relevant life insurance quotes online, you might find the process confusing. Premiums can vary depending on your age, health, the level of coverage you need, and the structure of your business. The right policy will also depend on whether you’re a company director, contractor, or small business owner.
An insurance advisor can often provide accurate, tailored quotes faster than online comparison platforms. This is because they understand how relevant life insurance works and which providers are best suited to your situation. They might even suggest alternative protection policies if there’s something more appropriate.
If you’d like a free, no-obligation chat with an advisor specialising in relevant life insurance, you can get started here:
Speak to a life insurance specialist today
Tax treatment of relevant life insurance
One of the biggest advantages of relevant life insurance is how HMRC treats it. We’ve touched on this already, but here’s a full breakdown of the current tax treatment of these policies.
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Corporation tax relief: Premiums are typically treated as an allowable business expense.
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No National Insurance contributions: Premiums aren’t classed as a benefit in kind.
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Tax-free payout: The lump sum is usually free from income tax and inheritance tax (IHT), because it’s written in trust.
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Personal tax savings: Because the business pays, you don’t need to take extra salary or dividends to cover the premiums.
Pros and cons to consider
The advantages of relevant life insurance are as follows:
Pros
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Tax-efficient cover for business owners and employees.
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Beneficiaries usually receive a tax-free payout.
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Premiums are paid by the business, not from your personal income.
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Can be cheaper overall than standard life insurance.
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Flexible to cover directors and employees without needing a full group scheme.
There are potential drawbacks to consider too, such as:
Cons
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Only available if you’re employed by a business (not for sole traders).
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Slightly more complex to set up due to trust requirements.
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Policies end when you leave the company (although some can be transferred).
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Doesn’t cover critical illness unless added separately.
Why choose Teito for your life insurance needs?
Finding the best relevant life insurance policy isn’t always straightforward. Your business setup and personal circumstances are unique, and expert guidance ensures you get the most tax-efficient protection that works for you and your family.
Our experienced advisors can help you compare the UK’s leading providers, explain the tax benefits, and make sure your policy is set up correctly in a trust. Whether you’re a director, contractor, or small business owner, we’ll find the most suitable and affordable protection plan for your needs.
Here are some more of the reasons people trust us to help arrange their relevant life insurance:
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Tailored quotes from the UK’s best insurance providers
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Access to advisors specialising in relevant life cover
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Your first initial chat is free, with no obligation to proceed
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Our advisors are 5-star rated on leading review sites
Ready to take advantage of a free, no-obligation chat with an advisor specialising in relevant life insurance? Get started here.
FAQs
Premiums are usually deductible against corporation tax, it’s not treated as a benefit in kind, and payouts are typically tax-free. This can make it far more tax-efficient than personal life insurance.