Relevant Life Cover: Company-Paid Life Insurance for Directors

Relevant life cover is life insurance that a limited company pays for on the life of a director or employee. If that person dies during the policy, it pays a lump sum to their family through a trust, usually outside their estate. Because the company pays, it can cost much less than buying the same cover personally.

Many company directors pay for their own life insurance out of dividends that have already been taxed twice: once as company profit and again as dividend income. Relevant life cover, also called a relevant life policy, lets the company pay instead, so the cover is funded from pre-tax profit.

It is not a loophole, and HMRC sets out the conditions clearly. This guide explains those conditions in plain English, shows an illustrative comparison of the two ways of paying, and covers when relevant life is not the right answer. For the wider picture of personal and business cover, see our UK protection guide.

What is a relevant life policy and how does it work?

A relevant life policy is a single-person version of the group life cover that larger employers provide. The company is the policyholder and pays the premiums. You are the life insured. The policy is written into a trust from the start, and the trustees pay the money to the people you want to benefit, usually your partner, children or other family.

Feature	How relevant life works
Who pays	Your limited company
Who is insured	A director or employee of that company
What triggers a payout	Death during the policy term
Who receives the money	Your family or other individuals, through a trust
Can the company benefit	No
Cash-in value	None
Latest age cover can run to	HMRC’s conditions refer to death under a specified age not over 75

The amount of cover is linked to your remuneration from the company. Insurers each have their own rules on how much cover they will allow and how they treat salary and dividends, so this is one of the first things we check.

Who can have relevant life cover?

Relevant life cover is for employees and directors of limited companies. The policy is part of your employment package, so there has to be an employer and an employee.

It is not available to sole traders or partners in a partnership. They are not employees of a company, so there is no employer to pay the premiums. If you work for yourself without a limited company, personal level term life insurance or family income benefit are the usual alternatives.

Relevant life tends to suit:

• directors of one-person or small limited companies who pay themselves mostly through dividends
• small companies that are too small for a group life scheme but want to offer life cover to key staff
• higher earners whose group death in service cover is not enough on its own
• directors who want their personal cover kept separate from any cover the company holds for business reasons.

What conditions does HMRC set for relevant life cover?

HMRC’s Employment Income Manual, at EIM15045, describes a policy for one individual that would meet the conditions for an excepted group life policy if it covered a group. In practice, that means the following conditions.

It must pay death benefits only

The policy can only pay a lump sum on death, plus refunds of premiums for any unexpired period. It cannot pay out on other events, such as disability, and it must not have, or be capable of having, a surrender value (IPTM7030). This is why you cannot add critical illness cover to a relevant life policy.

The company cannot benefit

The benefits must go to individuals or charities. HMRC’s manual gives the example of a policy where the company is the beneficiary and says it would not meet the condition. A lender that has first call on the money to repay a loan would also fail it (IPTM7035). So relevant life cannot be assigned to a mortgage lender or used to repay a company debt.

Tax avoidance must not be a main purpose

EIM15045 also lists a condition that avoiding tax is not one of the main purposes. A sensible amount of cover, in line with your remuneration and your family’s needs, is the starting point.

It must be written in trust

Relevant life policies are set up under a trust, usually a discretionary trust provided by the insurer. HMRC’s Inheritance Tax Manual at IHTM17092 explains that these death benefits are not treated as part of the member’s estate because the trustees have discretion over who receives them. It also explains that, because these are term policies with very little value while you are alive, the trust charges that can apply to discretionary trusts are usually nil. They can arise in some situations, for example if a payout is still sitting in the trust at a ten-year anniversary, so trustees should pay claims out promptly.

How is relevant life cover taxed?

There are three parts to the tax picture. This is general information, not tax advice, and your accountant should confirm how it applies to you.

Who	Usual position	Where it comes from
You, the employee	HMRC treats it as an excepted policy, and a benefit in kind charge may be exempted by section 307, depending on the circumstances	EIM15045
The company	Premiums are usually treated as an allowable business expense under the wholly and exclusively rule, as part of your remuneration. Confirm with your accountant	Your accountant’s view of your circumstances
Your family	The payout goes through the trust and is usually outside your estate for inheritance tax	IHTM17092

The company deduction depends on the cost being part of a reasonable overall pay package for the work you do. The premiums are not pension contributions, because a relevant life policy is not a pension.

How does relevant life compare with paying for cover personally?

If you pay for life cover yourself, the money usually comes from income you have already paid tax on. For a director taking dividends, that means Corporation Tax on the company profit, then dividend tax on what you draw. If the company pays the premium as an expense, it comes from profit before Corporation Tax, and if the section 307 exemption applies, there is no income tax charge on you.

For the 2026 to 2027 tax year, the dividend ordinary rate is 10.75%, the upper rate is 35.75% and the additional rate is 39.35% (GOV.UK income tax rates). For the year from 1 April 2026, Corporation Tax is 19% for profits under £50,000 and 25% for profits over £250,000, with marginal relief in between (GOV.UK Corporation Tax rates).

Illustrative £1,200 annual premium	Paid personally (dividend upper rate)	Paid personally (dividend ordinary rate)	Paid by the company through relevant life
Dividend you need to draw	About £1,868	About £1,345	None
Company profit used	About £2,490	About £1,793	£1,200
Net cost to the company after Corporation Tax relief	Not applicable	Not applicable	£900

Ask your accountant to run your own figures.

How do death in service and the 2027 pension changes affect relevant life?

Many employers provide death in service cover through a registered pension scheme or a group life scheme. The government has confirmed that from 6 April 2027 most unused pension funds and death benefits will come into inheritance tax, but that death in service benefits payable from a registered pension scheme “will remain out of scope of inheritance tax” (GOV.UK).

A relevant life policy is not a registered pension scheme. Our reading is that the April 2027 pension change therefore does not apply to it, and its inheritance tax treatment continues to follow the trust rules described in IHTM17092. That is our interpretation of the published guidance rather than a specific HMRC statement about relevant life, so ask your accountant or a tax adviser to confirm it for your situation.

In practice, relevant life often acts as death in service for small companies that have no group scheme. It can also top up cover from another job, and unlike most death in service, you choose the amount and the term.

When is relevant life cover not suitable?

It is a strong option for the right person, but it does not fit everyone.

• You are a sole trader or a partner. There is no company to pay, so look at personal cover instead.
• You want critical illness cover. Relevant life pays on death only. If you want a payout on a serious diagnosis, you need a separate personal critical illness policy.
• You need cover assigned to a lender. Because a lender cannot have first call on the money, relevant life cannot be used where a lender requires the policy to be assigned to them.
• The company needs the money. If the aim is to protect the business from losing you, that is key person insurance. If it is to let your co-owners buy your shares, that is shareholder protection.
• The company cannot reliably pay. If profits are irregular or the business might close soon, a personal policy may give you more certainty.
• You want cover for the rest of your life. Relevant life is term cover. Lifelong cover is a different product, such as whole of life insurance, which you would usually arrange personally.

What choices do you make with a relevant life policy?

• The amount of cover. Base it on what your family would need, within the limit the insurer allows for your remuneration.
• The term. Many directors match it to their mortgage, their children’s ages or their planned retirement, within HMRC’s age limit.
• Level or increasing cover. Some policies let the cover rise each year to keep pace with inflation, which usually costs more.
• Guaranteed or reviewable premiums. Guaranteed premiums stay the same for the whole policy.
• The trustees. Choose people you trust to act quickly and fairly for your family. Depending on the insurer’s trust wording, your company may be a trustee too.

What affects the cost of relevant life cover?

The price is set the same way as personal life cover: your age, health, family medical history, smoking or vaping, your job, the amount of cover and the term. Who pays does not change the underwriting. What changes is the real cost to you once tax is taken into account.

What are the most common relevant life mistakes?

1. Leaving it in the company’s name with no trust. The trust is what gets the money to your family and keeps it out of your estate.
2. Expecting it to cover a mortgage lender. It cannot be assigned to a lender.
3. Assuming it includes critical illness. It never can.
4. Not telling your accountant. They need to record the premiums correctly and confirm the treatment.
5. Forgetting to review it. If your pay, your family or your mortgage changes, the cover should too.

How Option Finance helps with relevant life cover

Many of our clients are company directors, so we look at relevant life alongside your mortgage and your personal cover. If you are borrowing as a director, our company director mortgage guide explains how lenders assess you. We will:

• check that you and your company meet the conditions
• work out how much cover your family needs and what the insurer will allow
• compare relevant life policies from leading UK insurers
• set up the trust with you at the start
• keep personal cover in place where relevant life cannot do the job
• share the details with your accountant so they can confirm the tax treatment.

How we are paid. There is no fee for our protection advice. We are paid by commission from the insurer you choose. If we are arranging your mortgage, protection advice is included at no extra cost.

Frequently asked questions

Speak to Option Finance about relevant life cover

If you run a limited company and pay for life cover personally, it is worth checking whether your company could pay instead. We will look at your cover, your family’s needs and your mortgage together, with no obligation to go ahead.

Book a free initial consultation using the enquiry form below. See also our UK protection guide, income protection guide and self-employed mortgage advice.