What is relevant life insurance in the UK?
Relevant life cover is a type of life insurance that a UK employer takes out and pays for on the life of a single employee or director to provide an individual death in service-style benefit. If the insured person dies or is diagnosed with a terminal illness while employed by the company and covered by the policy, it pays a tax-free lump sum to their chosen beneficiaries, usually via a trust. It is designed for limited companies that want tax-efficient life cover for key people, without setting up a full group scheme, and is not available to sole traders or equity partners.
Who can have relevant life cover?
Relevant life insurance is only available where there is an employer-to-employee relationship, such as directors and employees of a limited company. It cannot be used for sole traders, traditional partnership equity partners or equity members of a limited liability partnership, because they are not employees of their own business in the way HMRC requires for this type of policy.
How much will a relevant life policy pay out?
The amount of cover, known as the sum assured, is usually based on a multiple of the employee’s total remuneration, including salary, dividends and bonuses. Depending on age and insurer terms, cover can often be set anywhere from around 10 to 25 times their annual package, with no fixed statutory maximum but practical limits set by the provider’s underwriting rules.
What are the tax benefits of relevant life insurance?
Where set up correctly, premiums are normally treated as a deductible business expense for the employer and are not usually treated as a taxable benefit in kind for the employee. The benefit is typically paid tax-free outside the employee’s estate for inheritance tax, and unlike many group death in service benefits, it does not count towards the employee’s pension annual or lifetime allowances.
How much does relevant life insurance cost?
Relevant life insurance premiums start from as little as £5 per month, and the average cost of cover is typically around £40 to £70 before any tax deductions. The average monthly tax saving for a relevant life insurance policy is typically between £15 and £30 per month for a salaried employee or limited company director.
Key Points: Relevant life insurance guide 2026 and tax-efficient cover.
- Relevant life cover is employer-owned life insurance that gives an individual death in service-style benefit to one UK resident employee or director aged roughly 17 to early 70s at setup.
- It is only available where there is an employer and employee relationship, so not for sole traders or equity partners who are not technically employees of their business.
- The sum assured is usually based on a multiple of total remuneration, often between 10 and 25 times earnings, subject to insurer limits.
- Premiums are normally paid by the company, can be eligible for corporation tax relief and are usually free of National Insurance for both employer and employee.
- Benefits are usually paid tax-free through a trust, sit outside the estate for inheritance tax, and do not use up any pension annual or lifetime allowance.
- There is no cash in value; relevant life is pure term assurance that only pays on death or qualifying terminal illness.
- Some policies are portable, so cover can sometimes continue if the insured employee changes employer.
- Tax rules and HMRC practice can change, and individual circumstances matter, so professional advice is strongly recommended.
What is relevant life insurance?
Relevant life insurance is a cost-effective option for businesses that want to provide life insurance for key members of staff, business owners, or company directors. This can be helpful for small to medium-sized businesses that don’t have the resources to offer a full group life insurance scheme.
Main benefits of relevant life insurance:
- Extremely simple to set up for multiple employees compared to group life insurance policies.
- Will often include popular life insurance benefits, such as guaranteed insurability or access to additional support services (e.g. Virtual GP appointments).
- Owned by the business and offers savings in corporation tax and national insurance (up to 49% tax savings).
- Relevant life claims should not be subject to income tax, national insurance, capital gains tax, or inheritance tax (in most cases)*.
- An attractive tax-free benefit to offer to key employees, as relevant life cover is not treated as a ‘benefit in kind’.
- Good for estate planning and minimising Inheritance Tax (IHT) liability, as most policies will be written into a Discretionary Trust immediately.
- Most relevant life policies will be portable (can be changed to personal life cover if needed).
These policies are often compared to a typical ‘death in service’ benefit, but relevant life insurance provides a far more comprehensive level of cover. Relevant life insurance is essentially the same as a personal life insurance policy, with the main difference being that it is paid for by your business or your employer.
Businesses tend to offer relevant life insurance to key staff members and high-earning employees as an appealing employee benefit.
The 2 main options for relevant life cover are:
- Level term relevant life insurance: Your cover amount will always remain the same throughout the term of your policy. This is commonly used to support your family in the event of your death, helping with key expenses like funeral bills.
- Decreasing term relevant life insurance: The amount of cover will reduce throughout the term of the policy, which is the same as standard mortgage life insurance. This is usually a cheaper option than level term cover.
Pros and Cons of relevant life plans
| Pros | Cons |
|---|---|
| Cost-effective business protection with a range of tax benefits for both the employer and employee. | Not sold by all UK life insurance companies, so fewer options for insurers. |
| Provides comprehensive financial protection for either the person’s family or the business itself. | The business would need to budget for additional costs, as the business/employer pays for the insurance premiums. |
| Attractive employee benefits that form part of an employee’s remuneration package and can help with recruitment and employee retention. | No option for whole life cover, with many policies stopping at age 75 maximum. |
If relevant life insurance doesn’t seem like the right policy for what you need, there are several other forms of business life insurance that might be useful. This includes policies such as keyperson insurance or shareholder protection, which both work slightly differently from relevant life policies.
How does relevant life insurance work?
The employee must be a UK resident at the start of the policy and usually needs to be between 17 and around 71 years old when cover begins, although exact age limits vary between insurers. Because it is a form of term insurance, the policy runs for a fixed period, for example until a chosen retirement age or a maximum age such as 75, and then it ends with no payout if no claim has been made.
From the business point of view, relevant life cover is attractive because premiums are typically treated as a legitimate business expense by HMRC when they are wholly and exclusively for the purposes of the trade, which can reduce corporation tax. There are usually no employer or employee National Insurance contributions on the premiums, which compares well with paying a higher gross salary so that an employee can fund their own personal life insurance from take-home pay.
Who relevant life policies are suitable for
Relevant life cover is most commonly used by small and medium-sized limited companies that want to look after key people in a tax-efficient way without the cost and complexity of a full group life scheme. Typical users include owner-managed businesses, personal service companies, consultants and professionals operating through a limited company who want to provide death-in-service-style cover for directors and selected staff.
Because the policy has to be set up by an employer for an employee, it is not available for:
- Sole traders operating in their own name, because there is no separate employing entity
- Equity partners in a traditional partnership, who are treated as self-employed individuals rather than employees
- Equity members of a limited liability partnership, who are usually taxed as partners rather than employees
However, salaried members or employees within an LLP or partnership structure may be eligible in some cases, provided there is a genuine contract of employment. Insurers will normally want confirmation of employment status before offering terms.
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How to calculate relevant life insurance
The level of cover under a relevant life policy is closely linked to the insured person’s total remuneration. This usually includes their basic salary together with variable elements such as bonuses, commission and regular dividends paid from shares in the employer’s company. Some insurers will also take into account other taxable benefits, but this depends on their specific product rules.
There is no fixed statutory cap on the multiple of earnings that can be used, but in practice insurers apply their own limits. As a guide, younger employees can often be covered for 20 to 25 times their total remuneration, while older employees may be limited to around 10 to 15 times. The rationale is that younger workers have more years until retirement, so their future financial contribution to dependants is higher.
Here is a simple illustration of how this might look in practice:
| Age at policy start | Total remuneration | Typical maximum multiple | Illustrative maximum cover |
|---|---|---|---|
| 30 | £40,000 | 25 times | £1,000,000 |
| 40 | £60,000 | 20 times | £1,200,000 |
| 50 | £80,000 | 15 times | £1,200,000 |
| 60 | £100,000 | 10 times | £1,000,000 |
These figures are for explanation only and do not represent guaranteed limits, but they show how a relevant life policy can provide significant protection that comfortably covers a mortgage, children’s education costs and everyday bills for surviving family members.
Tax benefits for employers and employees
One of the main reasons relevant life cover is attractive is the potential tax efficiency compared with a personally paid life policy. As always, tax treatment depends on individual circumstances and current legislation, so this section gives a general overview rather than personal advice.
Employer tax treatment
If HMRC accepts that the premiums are wholly and exclusively for the purposes of the business, they can usually be treated as an allowable expense against corporation tax. In addition, there are normally no employer National Insurance contributions on the premiums, which would not be the case if the business paid the same cost as extra salary.
For example, if a company pays £100 per month for a director’s personal life insurance through their salary, it might face employer National Insurance on that additional pay, and the director would pay income tax and employee National Insurance before they can meet the premium. With a relevant life policy, the £100 premium is paid gross by the company, with no National Insurance in most cases, and may attract corporation tax relief.
Employee tax treatment
From the employee’s side, premiums paid into a qualifying relevant life policy are not normally treated as a benefit in kind. This means there is usually no income tax to pay, and the cost does not appear on a P11D form. There are also normally no employee National Insurance contributions on the value of the premiums.
Importantly, the benefits of a relevant life plan are kept separate from the employee’s pension allowances. The premiums do not count towards the annual allowance, and any payout does not usually affect the lifetime allowance or equivalent limits that may replace it over time. This can be particularly useful for higher earners who want substantial death-in-service protection without jeopardising their pension strategy.
On the death of the insured person, the lump sum is generally paid out tax-free under current rules and is not usually treated as part of the employee’s estate for inheritance tax purposes. That is one reason why having the policy properly written in trust is so important.
Note: TAX TREATMENT DEPENDS ON INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE. It is wise to speak to a qualified tax adviser or independent financial adviser before setting up or altering any relevant life arrangement.
The role of trusts with relevant life insurance
Almost all relevant life policies are written under a special type of trust at the outset. The employer is usually the original trustee, often alongside the insured employee and possibly additional trustees. The trust then holds the policy for the benefit of nominated beneficiaries, such as a spouse, civil partner, children or other financial dependants.
Using a trust helps in several ways:
- It allows the insurer to pay the death benefit quickly to the trustees, without waiting for the employee’s estate to be formally administered.
- It keeps the proceeds outside the employee’s estate in most cases, which helps avoid or reduce inheritance tax.
- It gives flexibility for the trustees to decide how best to distribute the money if circumstances change, for example if relationships or family needs alter over time.
The trust wording has to meet HMRC conditions for relevant life policies, so using the standard documents supplied by the insurer or a specialist adviser is usually recommended. If the policy is later made portable and the employee takes it on personally, a new trust structure will usually be required to keep the tax advantages.
Portability when changing employer
One drawback of many traditional group death in service schemes is that cover stops as soon as the employee leaves the employer. Relevant life cover can be more flexible, although the specific position will depend on the insurer’s terms. If the policy is described as portable, it means the insured person can request that the ownership be transferred so the cover continues after they leave their original employer.
There are two common ways this works in practice:
- New employer takes over: the new company agrees to become the policyholder, pays the premiums going forward, and usually sets up a new trust to reflect its employee benefits arrangements.
- Individual takes over: the former employee becomes the policy owner and pays the premiums personally. At this point the cover might no longer meet HMRC criteria for relevant life treatment, so some or all of the tax advantages may be lost, but it can still be valuable for continuity of insurance.
If keeping tax efficiency is important, it is usually best for another employer to take on the policy. If someone expects to change jobs often or become self-employed, it may be worth considering how relevant life cover would fit alongside personal life insurance when planning long-term protection.
How relevant life compares with other options
For UK businesses and directors looking for low-cost, tax-efficient protection, it is useful to understand how relevant life stacks up against other common choices.
Versus personal life insurance
With a personal life insurance policy, the individual pays premiums from their taxed income. For every £1 of premium, a higher-rate taxpayer may need to earn considerably more before tax and National Insurance, which makes personal cover more expensive on a like-for-like basis. Relevant life premiums are paid by the company, can usually be deducted from profits for corporation tax and are not taxed as a benefit, so the overall cost to provide the same level of cover is often significantly lower.
Versus group death in service schemes
Group death in service, or group life insurance, is ideal for larger employers who want a consistent benefit for many staff. However, these schemes can have minimum numbers and ongoing administration that do not suit very small companies. Relevant life provides an individual solution where one or a handful of employees can be covered without setting up a full group arrangement. Both normally require a trust and offer broadly similar tax advantages, but relevant life is more tailored to the individual.
Getting advice and choosing the right relevant life insurance
Because relevant life cover sits at the intersection of insurance, tax and employment law, it is sensible to get professional support before going ahead. An independent financial adviser or specialist protection broker can compare quotes from multiple UK insurers, explain underwriting rules, and help you design a level of cover that balances cost with the needs of your family or key staff.
When comparing policies, think about:
- Minimum and maximum entry ages and when cover must end
- The maximum multiple of remuneration and how remuneration is defined
- Whether terminal illness cover is included and how it is defined
- Premium structure, for example, guaranteed fixed premiums or reviewable premiums
- Options to increase cover after life events without full medical underwriting
- Portability terms if the insured person later moves to another employer
It can also be worth reading independent guidance from trusted UK sources such as the MoneyHelper service and comparing this with information from leading insurers. While marketing material can be helpful, every business and individual has different priorities, so tailored advice often pays for itself in better value and fewer surprises later.
Relevant life insurance FAQs
Is relevant life cover the same as a death in service benefit?
No, relevant life cover is not exactly the same as a traditional death in service benefit, although it works in a similar way. A conventional death in service scheme is usually a group life policy that covers a wider workforce under one umbrella arrangement with a single set of rules. Relevant life cover is set up on an individual basis for a specific employee or director, which makes it suitable for smaller limited companies that do not want or cannot access a full group scheme. Both types of cover typically pay a tax efficient lump sum via a trust if the insured person dies while employed, but the structure, eligibility and administration are different.
Can a director of their own limited company take out relevant life cover on themselves?
Yes, a director who is an employee of their own limited company can usually be covered under a relevant life policy, provided there is a genuine employer – employee relationship and PAYE salary is being paid. In that case, the company applies for and owns the policy, pays the premiums and sets up the accompanying trust for the director’s beneficiaries. This is different from a sole trader or equity partner who is not classed as an employee of their business for HMRC purposes and therefore cannot use relevant life in the same way.
Does relevant life cover include critical illness protection?
Relevant life cover is designed as pure life insurance, sometimes with terminal illness as an additional feature, so it does not normally include full critical illness cover. Terminal illness benefits require the insurer’s medical definition to be met, often linked to a very limited life expectancy, whereas critical illness policies pay out on diagnosis of specified serious conditions that may not be immediately life limiting. If an employer or director wants protection against critical illnesses as well as death, this usually needs to be arranged separately, either through a business protection policy or personal critical illness cover alongside the relevant life plan.
What happens if the level of an employee’s remuneration changes over time?
If an employee’s total remuneration changes, for example through pay rises, variable bonuses or increased dividends, the original relevant life sum assured may become less appropriate. Many employers review cover periodically and either set it at a conservative level from the outset or adjust it in line with changing earnings, subject to the insurer’s rules. Some policies offer options to increase cover after certain life events, such as marriage or the birth of a child, without full medical underwriting. Where significant changes are needed, fresh medical questions or checks may be required, so it is sensible to build regular reviews into your wider benefits and remuneration planning.
Can beneficiaries choose how to use a relevant life payout?
Yes, beneficiaries usually have considerable flexibility over how a relevant life payout is used. The insurer pays the lump sum into the policy’s trust, and the trustees then decide how and when to distribute funds to the people who are intended to benefit, taking account of the employee’s wishes. This money can be used for any purpose, such as repaying a mortgage, maintaining household bills, funding children’s education or creating a long term investment pot. Because the payment is normally outside the deceased’s estate for inheritance tax purposes and is not tied to a specific financial product, it can be tailored to the family’s priorities at what is often a very difficult time.
Summary: Relevant life insurance and tax-efficient cover
Relevant life cover is a powerful tool for UK limited companies that want to protect their people and their families in a tax-efficient way. It delivers a clear lump sum on death or terminal illness, without draining an employee’s pension allowances or increasing their personal tax bill, and it can often be arranged for a modest monthly cost compared with the financial security it offers.
If you run a small business, work as a director of your own limited company, or are responsible for employee benefits in a growing firm, taking the time to understand relevant life cover can help you put strong, cost-effective protection in place. Just remember that eligibility, tax treatment and the right level of cover all depend on your specific situation, so it is well worth speaking to a regulated adviser who can look at the full picture before you decide.
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