COVERLIFE

Relevant Life Cover

Tax-efficient life insurance through your employer designed for business owners and employees.

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Death In Service For A Company Too Small To Have A Scheme

A relevant life policy is a death in service benefit for one employee, paid for by the company. It exists for businesses too small to run a group scheme, which in practice means most limited companies with a handful of directors and staff.

The attraction is the tax treatment. The premium is normally an allowable business expense for corporation tax, it is not usually treated as a benefit in kind on the employee's P11D, and there is no employee or employer national insurance on it. The same cover bought personally is paid for out of income that has already been taxed twice over. For a higher rate taxpaying director the difference in real cost is substantial.

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Why Choose Relevant Life Cover?

Our team of insurance specialists has extensive experience advising business owners and employees on tax-efficient protection strategies. Whether you're looking to provide personal security, enhance employee benefits, or maximize tax savings, we ensure you have the right coverage at competitive rates.

What To Check

•That the person is genuinely an employee
•The discretionary trust is set up at outset
•Cover multiple against salary plus dividends
•That your accountant is comfortable with the deduction
•Life cover only, no critical illness
•Who the intended beneficiaries are

What is Relevant Life Cover?

Relevant Life Cover is a tax-efficient life insurance policy designed specifically for business owners, directors, and employees. It provides a lump sum payment to the insured person's family if they pass away while employed by the company. Unlike standard personal life insurance, Relevant Life Cover premiums are paid directly by the business, offering significant tax savings.

Why is Relevant Life Cover Important?

Many business owners and employees want life cover, but standard policies are paid from post-tax income. Relevant Life Cover provides a more efficient alternative:

Tax Savings

Premiums treated as business expense, reducing corporation tax

Business Expense

Company pays premiums instead of using personal after-tax income

Higher Cover

Greater protection at lower cost due to tax efficiency

Peace of Mind

Employees know their families are financially secure

Who is Eligible for Relevant Life Cover?

Company Directors & Business Owners

Seek tax-efficient life cover without reducing your personal income.

Small Businesses

Want to offer life insurance without setting up a full group scheme.

Employees

Want personal life cover without paying from post-tax income.

Any Business

Seeking to enhance employee benefits and attract top talent.

Key Benefits of Relevant Life Cover

Tax Efficiency

Significant cost savings through business-paid premiums and tax deductions

Higher Coverage

Can cover multiple of earnings, providing comprehensive family protection

Employee Retention

Enhance benefits package and attract top talent to your business

Family Security

Ensures loved ones receive tax-free lump sum protection

Get Tax-Efficient Life Protection

Don't leave your family's financial security to chance or pay excessive taxes on personal policies. With CoverLife's Relevant Life Cover, you can have comprehensive protection at a fraction of the after-tax cost.

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Who Can Actually Have One

It has to be an employee, and that word is doing real work. Salaried directors of a limited company qualify. Sole traders do not, because you cannot employ yourself, and equity partners in a partnership or LLP generally do not either for the same reason.

This is the point that most often derails an application late in the process. If you trade as a sole trader, personal life cover is the route, and the money simply comes out of post-tax income instead.

It Must Be Written In Trust From The Start

A relevant life policy has to be set up under a discretionary trust for the employee's family or dependants. That is not optional paperwork, it is part of what makes the arrangement qualify, and it is why the payout goes to the family rather than to the company.

That distinction matters and it is the one people mix up. A relevant life policy protects the employee's family. It does not compensate the business for losing them. If what you need is money in the company when a key person dies, that is keyman cover and it is a different product with very different tax treatment.

Limits, And What It Cannot Include

Insurers cap the cover at a multiple of total remuneration, commonly in the region of fifteen to twenty-five times depending on age, and salary plus dividends can usually be counted for a director rather than salary alone. Critical illness cannot be added to a relevant life policy; it is life cover and terminal illness only.

The benefit also sits outside pension allowances, which is why it appeals to people with substantial pension savings who would otherwise face a tax charge on a group scheme payout. As with anything tax related, the position depends on your circumstances and your accountant's view of them.

What It Costs

Relevant life cover is priced like ordinary life insurance, so it starts from around five pounds a month subject to age, health and lifestyle. The difference is not the premium, it is who pays it and out of what.

Because the company pays and the premium is normally deductible, the effective cost to a higher rate taxpaying director is often close to half what the same cover would cost bought personally. That gap, rather than the headline premium, is the reason to look at it.

Recent cases

Real examples of cover we have recently arranged. Customer details are anonymised.

Business protection

Helping two directors protect their business and their families

The situation

Two company directors, each owning 50% of the business, came to us about shareholder protection. If either died, they wanted the surviving director to have the money to buy the deceased director's shares from their family.

During our fact-find they also raised the cost of recruiting a replacement director and paying their salary. Both already held personal life insurance.

What we recommended

•Shareholder protection based on each director's 50% shareholding and the company valuation.
•Key person cover designed to help fund recruitment and two years of a replacement director's salary.
•Relevant life cover paid for by the business, replacing their personal life policies and keeping life protection in place for their families.

The outcome

Together the policies address three separate needs: ownership succession, the financial impact of losing a key person, and protection for each director's family.

Moving to relevant life cover reduced their monthly premiums and offered potential tax advantages, subject to their circumstances and the applicable tax rules.

Shareholder protection needs to work alongside the appropriate legal agreements and policy ownership or trust arrangements.

Every case is different. The cover, terms and premiums available to you depend on your circumstances and each insurer's underwriting.

Cover that often goes with this

The gaps we most often find sitting next to this one.

Common questions

What is relevant life cover?+

A death in service policy for a single employee, paid for by their employer, designed for companies too small to run a group scheme. It pays a lump sum to the employee's family through a discretionary trust if they die during the term.

Is relevant life cover tax deductible?+

The premium is normally an allowable business expense for corporation tax, provided it is wholly and exclusively for the purposes of the trade. It is not usually a P11D benefit in kind for the employee and there is generally no national insurance on it. The position depends on your circumstances, so it is worth confirming with your accountant before you rely on it.

Can a sole trader get relevant life cover?+

No. The policy has to cover an employee, and a sole trader cannot employ themselves. The same applies to most equity partners in a partnership or LLP. Salaried directors of a limited company do qualify. If you trade as a sole trader, personal life cover is the route.

Is relevant life cover better than personal life insurance?+

For a salaried director of a limited company it is usually cheaper in real terms, because the company pays from pre-tax profit rather than you paying from income that has already been taxed. The cover itself is comparable. It cannot include critical illness, which personal cover can, so it is not always a straight swap.

Does relevant life cover count towards the pension allowance?+

It generally sits outside pension allowances, which is one of the main reasons it is used instead of a group death in service scheme by people with substantial pension savings. Tax treatment depends on individual circumstances.

Who receives the payout from a relevant life policy?+

The employee's family or dependants, through the discretionary trust the policy must be written under. The company pays for it but does not receive the money. If you want the business to be compensated, that is keyman insurance instead.