Relevant Life Insurance UK

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What Is Relevant Life Insurance?

Relevant life insurance is a tax-efficient life insurance policy paid for by a limited company on behalf of a director or employee. The company owns the policy, the company pays the premiums, and the payout goes to the employee’s family through a discretionary trust. HMRC generally treats the premiums as an allowable business expense, does not count them as a benefit in kind on the employee, and the payout is almost always received tax-free by the family.

Here is the 30-second summary. If you are a limited company director paying for personal life cover out of your own post-tax income, you are almost certainly paying too much. Switching that same cover to a relevant life policy written through the business routinely saves a higher-rate director 40 to 50% on the effective cost of the same sum assured, because the premium is paid with pre-tax company money instead of post-tax personal income. It also sits outside your pension annual and lifetime allowance calculations and outside your estate for inheritance tax, assuming the trust is set up properly.

Knox Mortgages writes relevant life policies for limited company directors, contractors running through their own limited companies, and senior employees. Whole of market. Policy in trust as standard. No fee for protection advice.

Who Qualifies for a Relevant Life Policy

Relevant life is narrow by design. It only works for employees of a limited company, and that includes directors drawing a salary from their own company. The rules exist because relevant life sits inside HMRC’s registered pension scheme framework, and the framework only recognises an employer and employee relationship.

You can take out relevant life cover if you are:

A limited company director drawing a salary through PAYE
A salaried employee of a UK limited company
A director of a limited liability partnership (LLP) who draws a salary as an employee of the LLP

You cannot take out relevant life cover if you are:

A sole trader
A traditional partnership (not an LLP)
A self-employed contractor working through a CIS or umbrella structure without your own limited company
An equity partner drawing profit shares rather than a PAYE salary

This is the single most common point of confusion. If you trade as a sole trader or through an old-style partnership, the company paying the premium is legally you, so HMRC does not recognise the policy as a relevant life arrangement. You need personal life insurance instead.

If you run a limited company, even a one-director one-employee company, you qualify. Contractor clients who incorporated specifically to work through their own limited company almost always qualify.

How Tax Efficiency Works

This is the reason relevant life exists. A worked example shows the saving better than any explanation.

Take a higher-rate taxpayer director drawing a typical £12,570 salary and £50,000 in dividends from their own limited company. They want £500,000 of life cover costing £5,000 a year in premiums. Three ways they could pay for it:

Route	Gross cost to company	Corporation tax relief	Director tax paid	NI paid	Effective cost
Personal life insurance paid from salary	Company pays ~£9,050 gross salary to net £5,000	£2,262 corp tax saved on salary	£3,620 income tax at 40%	£1,435 employer NI + £430 employee NI	~£5,253 net cost
Personal life insurance paid from dividends	Company pays ~£7,440 dividend (after corp tax) to net £5,000	None on dividend	£1,684 dividend tax at 33.75%	None	~£5,000 net cost
Relevant life policy paid by company	Company pays £5,000 premium	£1,250 corp tax saved	£0 income tax	£0 NI	~£3,750 net cost

Numbers are illustrative and assume 25% corporation tax, higher-rate income tax at 40%, higher-rate dividend tax at 33.75%, and employer NI at 15%. Your numbers will differ.

The relevant life route saves this director roughly £1,250 to £1,500 a year in real money for the same £500,000 of cover, year after year, for the length of the policy. Over a 20-year term that is £25,000 to £30,000 of avoidable tax. On larger premiums, the saving scales directly.

HMRC generally treats relevant life premiums as an allowable business expense as long as the policy is written on the approved basis (wholly for the benefit of the employee and their family, in trust, no surrender value, no investment element, cover ends at age 75 or earlier). Your accountant signs off the treatment. Knox works with your accountant to make sure the structure is clean before the policy is placed.

The Benefits vs Ordinary Life Cover

Ordinary personal life insurance is paid from your post-tax income. Relevant life is paid from the company before tax lands on it. That single difference drives most of the benefit, but the structural advantages go further.

Feature	Ordinary personal life insurance	Relevant life insurance
Who pays the premium	You, from post-tax income	The company, pre-tax
Corporation tax relief on premium	None	Typically yes, as a P&L expense
Benefit in kind on director	None (you already paid from net)	None, premium is not taxed as a BIK
Employee NI on premium	None (paid from net)	None
Employer NI on premium	None	None
Counts toward pension annual allowance	No	No
Counts toward pension lifetime allowance legacy rules	Not applicable	No
Payout tax treatment	Tax-free, IHT-free if in trust	Tax-free, IHT-free through the discretionary trust
Portability if you leave the company	N/A, the policy is yours	Portable through a policy assignment in most cases
Critical illness bolt-on available	Yes	Limited. Available with some insurers as a rider

The standout item is the combination of no benefit in kind AND no NI AND corporation tax relief. Almost every other employee benefit falls down on at least one of those, which is why relevant life is the single most tax-efficient life insurance structure available to a UK limited company director.

Relevant Life vs Death in Service

Death in service is an employer-provided benefit paid through a group life scheme, usually a multiple of salary (often 2x to 4x). Relevant life sits alongside it or replaces it depending on company size. They are not the same product.

Feature	Death in service (group life)	Relevant life insurance
Typical employer size	Medium to large, 5+ employees	Any size, including one-director companies
Underwriting	Free cover limit then medical	Individually underwritten
Cover amount	Usually 2x to 4x salary	Typically 15x to 25x salary + dividends
Premium cost per £ of cover	Bulk-discount rate, often cheaper	Individually rated
Includes dividends in cover calculation	Rarely	Yes, most insurers accept dividends
Lifetime allowance interaction (pre-2023)	Payout counted toward LTA	Sits outside LTA
Tax treatment for employer	Deductible	Deductible
Tax treatment for employee	No BIK, tax-free payout	No BIK, tax-free payout
Portability when leaving	None, cover ends	Portable in most cases via assignment
Suitable for single-director companies	No, need a group of employees	Yes

One-director and two-director companies cannot run a group death in service scheme in any meaningful way. Relevant life is the direct substitute. Larger companies often use both: group life for staff generally, relevant life for directors who need cover well above the group scheme’s ceiling.

How to Set Up a Relevant Life Policy

Relevant life only qualifies for the tax treatment if the policy is structured properly. Three non-negotiables:

The policy must be owned by the employer (the limited company).
The policy must be written in a discretionary trust for the benefit of the employee’s family and dependants.
The policy must have no surrender value, no investment element, and must end by age 75.

The trust is the critical bit. Without the trust, the payout lands back inside the company, which loses the tax-free route to the family and creates a tax mess. Every major UK insurer that writes relevant life provides a standard discretionary trust form as part of the application. It takes about 15 minutes. Nominated beneficiaries are usually the employee’s spouse or civil partner, children, and other named dependants, with the trustees holding discretion on how to distribute.

Knox sets the trust up as part of the application. The directors named as trustees are typically the employee and one or two co-trustees (often a spouse plus a fellow director or family member). This is standard practice and HMRC accepts it when done properly.

Cover Limits

Relevant life cover can run up to age 75 at the outside, though most policies are written to age 65 or 70 to keep premiums sensible. The more interesting limit is on the sum assured.

UK insurers typically accept a sum assured of 15x to 25x total remuneration, where remuneration means salary plus dividends drawn from the company. Some insurers will push to 30x for younger applicants. That is materially more generous than group death in service (typically capped at 4x salary) and usually more than personal life insurance underwriters will offer against salary alone.

A director drawing £12,570 salary plus £100,000 in dividends has total remuneration of £112,570 for underwriting purposes. At 20x that supports £2.25 million of cover. At 25x that pushes to £2.8 million. Individual insurer appetite varies. Knox quotes the whole market to find the combination of cover level, premium, and underwriting flexibility that actually fits.

Typical Costs and a Worked Director Example

Relevant life premiums are underwritten individually. Cost depends on age, smoker status, health, occupation, cover amount, and term. Indicative monthly premiums for a healthy non-smoker taking £500,000 of level term relevant life cover to age 65:

Age at start	Non-smoker	Smoker
30	£18 to £28	£35 to £55
35	£22 to £34	£45 to £72
40	£32 to £48	£68 to £110
45	£48 to £75	£105 to £170
50	£75 to £120	£170 to £280
55	£125 to £200	£285 to £460

Worked example. A 40-year-old director, non-smoker, healthy, drawing £12,570 salary plus £80,000 dividends, wants £750,000 of level term cover running 20 years to age 60. Expected gross monthly premium sits around £45 to £60 depending on insurer, so call it £600 to £720 a year.

Paid personally from post-tax dividend income at 33.75%, that £720 costs the director the equivalent of £1,087 of pre-tax company money. Paid through a relevant life policy, the same £720 comes out of the company as a P&L expense, saves roughly £180 of corporation tax at 25%, and costs the director nothing personally. Net effective cost to the business: around £540 a year. Saving: roughly £540 a year, or 50% of the post-tax personal route, for exactly the same £750,000 of cover.

These numbers scale. Larger cover levels or higher premiums make the saving proportionally bigger in cash terms.

Critical Illness on a Relevant Life Policy

A handful of UK insurers allow a critical illness rider on a relevant life policy. Coverage pays out if the employee is diagnosed with one of the listed serious illnesses during the term.

Rules to be aware of:

Not every insurer offers CIC on relevant life. The option is more restricted than it is on personal policies.
The critical illness payout still has to go through the discretionary trust.
The tax treatment on the premium typically still qualifies as a deductible business expense, but this is the area where HMRC treatment is more finely balanced. An accountant should confirm before the policy goes live.
Premium loading for adding CIC can be substantial. Often two to three times the life-only premium.

For many Knox clients the cleaner route is relevant life for the death cover, and separately a personal critical illness policy or an executive income protection policy for the living-benefit side of the plan. Running them separately keeps the tax treatment simple and lets each policy be sized for the right job.

What Happens if the Director Leaves the Company

Relevant life is tied to the employment relationship. If you leave the company that owns the policy, the cover cannot simply continue as a relevant life policy because the employer-employee link has ended.

Two realistic outcomes:

Policy assignment. Most insurers allow the policy to be assigned to the employee personally as a continuation policy on broadly equivalent terms. The tax treatment changes (no more corporation tax relief, the premium now comes out of post-tax personal income) but the underwriting and cover level typically continue without re-underwriting. This is the route most directors take.
Policy lapse. If no assignment happens, the policy lapses when premiums stop. Any cover is lost.

If you are moving from one limited company to another, a new employer can technically pick up the policy and continue paying premiums, though in practice most directors prefer to start a fresh policy in the new company’s name. Knox handles the assignment paperwork whenever a client changes companies so the cover does not get dropped by accident.

When a Relevant Life Policy Pays Out and How

Payout mechanics are designed to keep the money outside the company and outside the estate. Here is how a claim runs:

The insurer is notified of the death and receives the death certificate.
The insurer pays the sum assured into the discretionary trust.
The trustees then distribute the money to the named beneficiaries (spouse, children, other dependants) according to the trust terms.
The beneficiaries receive the payout tax-free.

Straightforward claims typically pay the trust within 2 to 6 weeks of the death certificate being issued. Distribution from the trust to the family can happen immediately after that. Because the money never touches the company and never sits in the employee’s estate, there is no corporation tax drag, no income tax, no dividend tax, and no inheritance tax on the payout.

Claims are paid at very high rates across the UK life insurance industry, around 99% according to Association of British Insurers figures. The small number of declines are almost always tied to non-disclosure of material medical facts at application. Knox walks clients through the underwriting questions fully and pre-underwrites tricky cases to avoid that problem.

How Knox Writes Relevant Life Policies

Knox is whole of market and FCA-regulated for mortgage and protection advice. Relevant life cases run on the same process as every other protection case:

Understand the director’s remuneration structure, existing cover, and the financial gap.
Confirm eligibility and model the tax saving versus the personal alternative.
Size the cover. Typical multiples sit between 15x and 25x salary plus dividends.
Quote the whole market. Insurer appetite varies on dividends, occupation class, and health conditions.
Set up the discretionary trust as part of the application.
Handle underwriting, liaise with the accountant on the expense treatment, place the policy, file the trust paperwork.

There is no fee for Knox’s protection advice. Life insurance is commission-paid. Commission structures are disclosed on request.

Relevant life usually sits alongside other business protection cover for limited company directors. Knox also advises on executive income protection for replacing income during illness, key person insurance for protecting the business itself against the loss of a key individual, and mortgage cases for director-shareholders. If you own your trading company and buy-to-let property through a separate SPV, the limited company buy-to-let mortgage page explains how those cases are structured. For personal mortgage borrowing against salary plus dividends, see the company director mortgage page.

Frequently Asked Questions

What is the difference between relevant life insurance and death in service?

Death in service is a group scheme paid through a multi-employee pension trust, typically offering 2x to 4x salary. Relevant life is an individual policy owned by the company for a single named employee, typically offering 15x to 25x salary plus dividends. Small companies with one or two directors cannot run a real death in service scheme, so relevant life is the structural equivalent. Larger companies often run both, with relevant life topping up director cover above the group scheme ceiling.

Can a limited company director have a relevant life policy?

Yes, as long as the director draws a salary through PAYE from the company. Directors paid only in dividends without any PAYE salary technically fall outside the relevant life framework because there is no employer-employee relationship recognised by HMRC. Most directors draw at least a small PAYE salary (commonly around the personal allowance or the NI secondary threshold) specifically to preserve benefits like this.

What is the tax treatment for directors on a relevant life policy?

Premiums are generally deductible by the company as a P&L business expense. There is no benefit in kind on the director, no employee NI, no employer NI, and the payout is received by the family tax-free through the discretionary trust. The treatment depends on the policy being structured correctly (company-owned, in trust, no surrender value, cover ending by age 75). Speak to your accountant to confirm the treatment for your specific circumstances. Knox works with your accountant on this as standard.

Is a relevant life payout tax-free?

Yes, in almost all cases. The payout lands in the discretionary trust and is distributed to the named beneficiaries without income tax, capital gains tax, or inheritance tax. It never touches the company’s books and never forms part of the employee’s estate. Trust administration is handled by the named trustees, usually the employee plus one or two co-trustees.

Can a sole trader get a relevant life policy?

No. Relevant life is only available to limited companies (and some LLPs) with an employer-employee relationship. Sole traders and traditional partnerships do not qualify because there is no separate legal employer. If you are a sole trader, personal life insurance is the right route, though it will not have the same tax efficiency.

How much relevant life cover can I get?

Most UK insurers accept 15x to 25x total remuneration (salary plus dividends drawn from the company), with some going to 30x for younger applicants. A director on £100,000 of total remuneration can commonly get £1.5m to £2.5m of cover, subject to health and underwriting. This is materially more than typical personal life insurance offers for the same person.

What happens to my relevant life policy if I change jobs?

Most insurers allow the policy to be assigned to you personally or to a new employer. When assigned to you personally the cover continues on the same terms, but premiums become post-tax personal money and lose the corporation tax relief. If you assign to a new limited company you control, the relevant life treatment can continue. If nothing is done, the policy lapses when premiums stop. Knox handles the assignment paperwork whenever a client changes companies.

Can I add critical illness cover to a relevant life policy?

Some insurers allow a critical illness rider on relevant life, but the option is restricted compared to personal policies and the tax treatment on the added CIC premium is less clean. Most Knox clients take relevant life for death cover and add a separate personal critical illness policy or executive income protection for the living-benefit side. An accountant should confirm the CIC rider treatment before it goes live.

Does a relevant life policy count toward my pension lifetime allowance?

No. Relevant life sits outside the registered pension scheme tax limits. It does not count toward the pension annual allowance and did not count toward the legacy pension lifetime allowance. This was one of the biggest historic advantages for directors with large pension pots. The lifetime allowance has been reformed since 2023 but the structural separation of relevant life from pension limits still holds.

Do I need to put a relevant life policy in trust?

Yes. The trust is not optional. Without a discretionary trust, the payout lands back inside the company and loses the tax-free family route, which defeats the entire point of the structure. Every major insurer provides the standard trust form with the application. Setting it up takes around 15 minutes and costs nothing. Knox sets the trust up as part of the application for every relevant life case.

Speak to a Protection Adviser

Knox Mortgages writes relevant life policies for limited company directors, contractors running through their own limited companies, and senior employees. Whole of market. Trust setup as standard. No fee for advice.

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