How relevant life cover works
Your company applies for a term life policy on one person: you as a director, or a member of staff. The company pays the premiums from its bank account. The policy sits inside a relevant life trust from day one, and the trustees hold any payout for the people the insured person has chosen, such as a partner or children.
If the insured person dies before the policy ends, the insurer pays the trustees, who pass the money to the family. The company never receives the money. That makes relevant life cover a personal benefit funded by the business, close in spirit to the death in service schemes larger employers run for their whole workforce.
Who can have it
Relevant life cover suits small and medium sized limited companies, including one director companies. Any employee can be covered, so a business owner can use it for themselves and for a trusted manager or long serving member of staff. Each person has their own policy, which means you can set a different amount and term for each of them.
It does not work for sole traders, and equity partners in a traditional partnership are not employees, so it is not designed for them either. If your business is run as a partnership, our page on partnership protection covers the options that fit that structure.
- Directors of limited companies, including single director companies
- Salaried employees of a limited company
- Employees who are not covered by a group life scheme
- Higher earners who want personal life cover arranged through the business
The usual tax treatment
When the policy meets HMRC conditions and is written under a relevant life trust, premiums are normally an allowable business expense for corporation tax. The cover is not normally treated as a P11D benefit, so the insured person does not usually pay income tax on it, and no National Insurance is normally due on the premiums.
Because the payout goes into a trust, it normally falls outside the insured person's estate for inheritance tax. The deduction for the company depends on the premiums meeting the wholly and exclusively test, which HMRC applies to each business on its own facts. Tax treatment depends on your circumstances, so ask your company's accountant to confirm how it applies to you before you go ahead.
Rules the policy has to follow
To keep its special treatment, a relevant life policy has to stay simple. It pays a lump sum on death (and on a terminal illness diagnosis where the policy includes that). It cannot build up a cash value, and it has to end by the time the insured person reaches 75.
The money can only go to individuals or a charity. It cannot be paid to the company, and you cannot add critical illness cover to the same plan. If you also want cover for serious illness, that needs a separate policy. We can set the two up side by side so they fit together.
Relevant life cover next to the alternatives
A director who wants life cover usually has three routes. They can buy a personal policy and pay for it from their own taxed income. They can join a group life scheme, if the company runs one and has enough staff for it to make sense. Or the company can buy a relevant life policy just for them.
For a small company, a group scheme can feel like a lot of administration for two or three people, and a personal policy costs the director more once you account for the tax they paid on the money first. Relevant life cover sits between the two. It gives one person individual cover, with their own amount and term, paid for by the business. Some directors keep a personal policy as well, so their cover does not depend on staying with the company.
How Hi Tomorrow helps directors with relevant life cover
We start by looking at what the director or employee has already. Some people have cover from a previous job, some have personal policies, and some have nothing at all. From there we suggest an amount and a term that suit the person's family and finances, then compare the insurers on our panel for that profile.
We help complete the application, including the medical questions, and we make sure the relevant life trust is set up correctly when the policy starts. If the company's accountant has questions, we are happy to explain how the policy is put together so they can give you a clear view on the tax side.