The short answer is yes. For most limited company directors, relevant life insurance is cheaper than the personal policy they’re currently paying for, sometimes significantly so. The reason is tax, and it’s worth understanding exactly how that works before assuming the two are comparable.
The real cost of a personal life policy for a director
When a director pays for personal life insurance, the premium comes from income that’s already been taxed. If you’re drawing a salary and dividends, any money used to pay a personal premium has passed through income tax and potentially National Insurance on the way. The premium you see on the policy document is not the actual cost. The actual cost is what you had to earn and be taxed on to pay it.
Relevant life insurance changes that. The company pays the premium directly as an allowable business expense. There’s no income tax. No National Insurance. And the company gets corporation tax relief on the premium too. The same cover, structured differently, costs less. That’s the core of it.
For a higher-rate taxpayer running a small limited company, relevant life insurance can reduce the effective cost by up to 49% compared to a personal policy.
Why “small business” isn’t a barrier
One assumption that puts directors off is the idea that relevant life is designed for larger companies with HR departments and group schemes. It isn’t. There’s no minimum number of employees. A sole director with no other staff qualifies. The structure of a limited company, not its size, is what makes relevant life available.
This matters for small business owners in particular. A freelance consultant operating through a limited company has access to the same tax treatment as a mid-sized firm. The premiums are structured the same way, sit in the same type of discretionary trust, and carry the same tax advantages.What it does require is a legitimate limited company. Relevant life isn’t available to sole traders or self-employed individuals operating outside a limited company structure. For them, a personal life policy or critical illness cover is the right route, and both are worth considering depending on their financial commitments and dependants.
What the numbers look like in practice
Take a 40-year-old director of a small consultancy, drawing a salary of £12,570 and the rest as dividends, which is a common structure for tax efficiency. They want £750,000 of life cover over a 25-year term.
Through a personal policy, they might pay around £50 per month in premiums. To fund that £50, they need to draw income, pay tax on it, and then pay the premium. At a higher effective tax rate, the real cost from gross company income is closer to £85 per month.
Through a relevant life policy, the company pays the £50 premium directly. After corporation tax relief at 25%, the net cost to the company is around £37.50 per month. Same cover. Considerably less cost. The payout, if it were needed, would go into a discretionary trust and sit outside the director’s estate for inheritance tax purposes.
These figures are illustrative rather than a quote, but the direction of travel is consistent across most scenarios.
Personal policy vs relevant life: a direct comparison
| Feature | Relevant Life Policy | Personal Life Policy |
| Who pays the premium | The limited company | The individual |
| Tax on premiums | No income tax or NI; corporation tax relief applies | Paid from post-tax personal income |
| Inheritance tax position | Held in a discretionary trust, outside the estate | Part of the estate unless separately written in trust |
| Minimum employees | None | N/A |
| Available to sole traders | No | Yes |
| Critical illness included | No – death benefit only | Available as an add-on |
| Suitable for dividend-paid directors | Yes, with correct remuneration structuring | Yes |
The trust structure and why it matters
Relevant life policies are written into a discretionary trust from the outset. That’s a requirement, not an option. It means the payout doesn’t form part of the director’s estate on death, which removes it from the scope of inheritance tax. A personal policy achieves the same outcome only if it’s separately written in trust, something many people don’t do, either through oversight or because no one mentioned it.
Advisers see this regularly. Directors with existing personal policies that have never been written in trust, sitting in their estate, are fully exposed to a 40% inheritance tax charge on anything above the nil-rate band. Relevant life sidesteps that issue by default.
Where relevant life doesn’t reach
Relevant life covers death and terminal illness. It doesn’t include critical illness cover or income protection. For a director whose main concern is surviving a serious illness rather than dying from one, a separate critical illness policy is worth looking at alongside any life cover.
Dividends also need attention. Cover limits are based on total remuneration, and different insurers treat dividends differently when calculating the maximum sum assured. Getting that right matters, particularly for directors who keep their PAYE salary low. A specialist broker can navigate this; a generic comparison tool may not.
Why searching for the right policy takes longer than it should
The relevant life market has a large number of providers, and the premiums vary more than you might expect for what is structurally a similar product. The differences lie in how each insurer handles matters such as dividend income, occupation definitions, and trust documentation.
IGotCover is a specialist business protection broker. Rather than asking directors to compare policies across multiple providers, a process that takes time and requires familiarity with the product, IGotCover handles the search, comparison, and structuring. The trust deed is set up correctly from the start. The sum assured reflects actual remuneration. And the director can get back to running their business.
For sole traders or self-employed individuals who aren’t operating through a limited company, IGotCover can advise on personal life insurance and critical illness cover instead.
Relevant life insurance is affordable for small businesses because it’s funded by the company, not the individual, and the tax treatment means the effective cost is lower than a comparable personal policy. For directors of limited companies, the question isn’t really whether they can afford it. It’s whether they can justify continuing to pay more for the same cover.
