Relevant life policies
A relevant life policy is life cover a limited company takes out on a director, paid for by the company. The premiums are usually an allowable business expense and the payout is typically free of income tax and inheritance tax — a dual benefit unavailable to PAYE employees.
What makes it special
It’s individual life cover, but written through and paid for by your limited company. Because the company pays, premiums are generally treated as a deductible business expense, reducing corporation tax — while the benefit is held in trust and usually paid free of income and inheritance tax.
For a director, that’s materially more efficient than paying for personal life cover out of already-taxed income.
Why directors choose it
- Premiums are normally an allowable business expense.
- Reduces the company’s corporation tax bill.
- Payout is written in trust, typically outside the estate for inheritance tax.
- No National Insurance or benefit-in-kind charge, unlike salary used to fund personal cover.
Who it suits
Salaried directors of limited companies — including contractors running their own company — who want efficient life cover. It complements income protection and standard life insurance rather than fully replacing them.
Why directors look at this first
Because the company pays the premium rather than you paying it from money you have already drawn and been taxed on. For a director who takes a modest salary and dividends by design, that difference is not cosmetic — it changes what the same cover effectively costs you.
The policy is written by the company on the life of an employee or director, with the benefit going to the individual's family rather than to the business. Structurally it sits closer to the death-in-service benefit an employee might get than to a personal life policy, which is a useful way to think about what it is for.
Where it fits, and where it does not
It suits a director of a limited company who would otherwise buy personal life cover — the classic case being a contractor who has incorporated and now finds the company is the natural place to hold things. It does not replace income protection, which covers a different risk entirely, and it is not a route to cover for a sole trader with no company behind them.
There are conditions attached to how the policy must be set up and who can benefit, and the treatment depends on your company's circumstances. That makes it a decision to take with both an adviser and an accountant rather than from a comparison table — the tax position is the reason to do it, so it should be the accountant's view that confirms it.
How it compares with personal cover
On the cover itself, the two are similar: a lump sum on death during the term. The differences are in who pays, how it is treated, and how it is set up — a relevant life policy is normally written in trust from the outset, so the benefit passes to the family without forming part of the estate.
What it does not do is follow you automatically if you stop being a director. If you return to employment or close the company, the arrangement needs revisiting, which is worth knowing before you assume it is permanent. Our guide on relevant life versus personal cover sets the two out side by side.
Relevant life policy, answered
Who can have a relevant life policy?+
It’s designed for salaried directors and employees of limited companies. As a contractor running your own company, you can usually take cover on yourself through the business — we’ll confirm eligibility for your setup.
How is it more tax-efficient?+
The company pays the premiums as a business expense, reducing corporation tax, and the payout is normally free of income tax and inheritance tax via a trust — so the same cover costs less than funding it personally.
Is it the same as death-in-service?+
It’s similar in effect but designed for small companies and individual directors, without needing a group scheme. It’s a way to give yourself comparable cover to an employee benefit.
Can a sole trader take a relevant life policy?+
No. The policy is written by a company on the life of an employee or director, so there needs to be a company and an employment relationship. A sole trader would take personal life cover instead. Contractors who have incorporated are the typical candidates, which is why the question comes up so often around the point of going limited.
What happens if I stop being a director?+
The arrangement generally needs revisiting, because it depends on the employment relationship with the company that took it out. Cover does not simply follow you into a new role or into employment elsewhere. If you are considering closing the company or returning to permanent work, raise it before the change rather than after.