Death in Service vs Relevant Life for a One Employee Company
Death in service, also called group life insurance, is a scheme an employer sets up to cover its workforce, and relevant life insurance is a single life policy that gives one person the same style of benefit. The difference that decides it for a one employee company is simple: most group schemes need at least two or three lives to exist, and you only have one.
The short answer
A scheme an employer arranges to pay a lump sum to an employee’s family if that employee dies while working for the business. Cover is usually set as a multiple of salary, and it comes in two forms. A registered scheme is treated as a pension scheme for tax purposes, so payouts are tested against the lump sum and death benefit allowance. An excepted scheme sits outside the pension framework, but it can only pay lump sums for deaths before age 75, benefits must be calculated the same way for everyone insured, and the policy must have no cash value.
A single life policy your company takes out on you as an employee or salaried director. The company owns it and pays the premiums, the benefit is usually written into a discretionary trust, and the payout goes to your family rather than into the business. It has to end before age 75, it has no surrender value, and it cannot include critical illness cover, though terminal illness benefit is usually built in.
The unit of cover. Death in service covers a group and is priced and administered as a group. Relevant life covers one named person and is underwritten like an individual policy. For a company of one, that is the whole ball game.
If you trade as a sole trader rather than through a limited company, neither option is open to you, because relevant life needs an employer and an employee, and sole traders and equity partners are not eligible. Personal life cover written in trust is usually the closer equivalent there.
Which is right for you?
- You have grown past two or three people on the payroll and want to cover the whole team
- You are competing for staff and want a benefit you can put in a job advert
- Some of your team would struggle to get individually underwritten cover, and a free cover limit would help
- You would rather manage one scheme at renewal than a policy per person
- Cover for the team matters more to you than optimising the tax position of one director’s benefit
- Your headcount is likely to keep changing, and you want cover that flexes without a new application each time
- You are the only person on your company’s payroll, so a group scheme is not available to you
- You take a modest salary and the bulk of your income as dividends, and want cover that reflects the total
- You are currently paying for personal life cover out of income you have already been taxed on
- You have a substantial pension pot and want death benefits that usually sit outside the lump sum and death benefit allowance
- You expect to change structure at some point, and want cover you can take with you or convert to a personal policy
- You want the decision made and the cover in force this month rather than at the next scheme renewal
Side-by-side comparison
| Comparison | Death in service (group life) | Relevant life insurance |
|---|---|---|
| Minimum number of lives | Typically two or three employees, varies by insurer. | One, by design.Works with a single life |
| Available to a sole director company | Usually not, headcount is below most insurers’ minimum. | Yes, provided you are an employee of your own company.Open to a company of one |
| Available to sole traders and equity partners | No.Neither, personal cover in trust is the usual route | No. |
| Who owns and pays | The employer, under a trust. | The employer, under a discretionary trust. |
| Basis of cover | Usually a multiple of salary, set by scheme rules. | Usually a multiple of total remuneration including dividends.Counts dividends, not just salary |
| Typical maximum cover | Set by scheme design and insurer free cover limits. | Often up to around 15 times remuneration, and up to 25 or 30 times with some insurers for younger lives. |
| Underwriting | Often light or none up to a free cover limit for larger groups.Lighter for a team | Individual medical underwriting, terms or exclusions may apply. |
| Premium tax treatment | Usually an allowable business expense. | Usually an allowable business expense, subject to HMRC’s wholly and exclusively test. |
| Benefit in kind | Usually not a P11D benefit. | Usually not a P11D benefit. |
| Counts towards the lump sum and death benefit allowance | Yes if the scheme is registered, no if it is excepted. | Usually not.Usually outside the allowance |
| Inheritance tax position | Usually outside the estate when written under trust, though excepted trusts can face periodic and exit charges. | Usually outside the estate when written into a discretionary trust. |
| Who receives the payout | The employee’s family, via the scheme trustees. | Your family, via the trustees. |
| Critical illness cover | Not included. | Not permitted, terminal illness benefit usually included. |
| Maximum age | Cover normally ends at scheme retirement age, and before 75 for excepted schemes. | Must end before age 75. |
| Cost efficiency as headcount grows | Strong, cost per head usually falls with scale.Cheaper per head at scale | Each new person needs their own policy and underwriting. |
| Portability | Cover ends when you leave the employer. | Usually portable to a new employer or convertible to a personal policy.Yours to take with you |
| Admin | Annual scheme renewal, member data, trust documentation. | Set up once, then very little.Set up once |
| Who it suits | Businesses with a payroll of three or more. | Sole directors and small teams of one or two. |
The highlighted cells show where one option has the edge on that row. Relevant life takes more of them because the whole premise here is a company of one, and a group scheme wins clearly on underwriting and on cost per head once you have a team to cover. Tax treatment depends on your circumstances and on legislation, both of which can change. Allowability of premiums is not automatic and can be a matter for your local HMRC inspector, so ask your accountant to confirm the position in writing. Trust arrangements should be reviewed with a suitably qualified adviser. Cover is subject to underwriting and acceptance.
Real-world scenarios
Illustrative examples showing how the decision tends to play out. Names, businesses and figures are invented for illustration only, and are not quotes or a guarantee of cover.
The sole director with a mortgage and two children
Rachel, 34, is the only employee of her own design consultancy. She takes £12,570 in salary and around £47,000 in dividends, and has a £310,000 mortgage. She asks her accountant about death in service and finds that typically no insurer will write a group scheme for one life.
Read the full scenario
A relevant life policy of £500,000 over 25 years, owned and paid for by the company and written into a discretionary trust, would usually be the answer here.
The premiums would typically be an allowable business expense, and she is not taxed on them as a P11D benefit.
- Salary£12,570
- DividendsAround £47,000
- Cover£500,000
The company that grows to nine people
Two years later Rachel employs eight people. She now wants cover for everyone, and quotes for a group scheme come in at a lower cost per head than nine separate policies, with light underwriting up to a free cover limit.
Read the full scenario
A group scheme becomes the sensible route for the team.
Her own relevant life policy stays where it is, because it is already in force at rates she was accepted for at 34, and cancelling it would mean fresh underwriting at 36.
- HeadcountNine
- Route for the teamGroup scheme
- Existing policyKept in place
The switch case, a large pension pot
Marcus, 49, is the sole director of a consultancy with a pension pot of around £900,000. He is exploring a registered group life scheme now that his wife has joined the payroll, with cover set at £600,000.
Read the full scenario
On these figures the combined total of pension death benefits and registered scheme benefits would come to £1.5 million, against a lump sum and death benefit allowance of £1,073,100 for the 2026 to 2027 tax year, leaving roughly £427,000 that his beneficiaries could face income tax on.
Two relevant life policies, one for each of them, would usually keep the death benefit outside that allowance, though an excepted group scheme is worth pricing too.
- Pension potAround £900,000
- Proposed cover£600,000
- Potentially taxableAround £427,000
The rule of thumb
Relevant life insurance is your death in service when you are the only name on the payroll. Once there is a team, price up a group scheme for them and keep your own policy separate rather than folding it in.
Frequently asked questions
Can a limited company with one employee get death in service cover?
Is relevant life insurance the same as death in service?
Can my company pay for my life insurance?
Can I get relevant life insurance if I am self-employed?
How much cover can I get if I take a low salary and high dividends?
What happens to my relevant life policy if I close the company or take a job?
Related decision guides
One name on the payroll, or a team to cover?
Speak to a business protection specialist at IGotCover. We will confirm what you are eligible for, size the cover against your total remuneration rather than just your salary, set up the trust and compare our panel of insurers for you. Free, and with no obligation.
Get a Free Quote →Important information: This guide is for general information purposes only and does not constitute financial, legal, or tax advice. Tax treatment depends on individual circumstances and may change in the future. All figures and scenarios are illustrative only and do not represent a guarantee of cover, premium, or payout. Eligibility for cover is subject to insurer underwriting criteria and acceptance. You should seek advice from a qualified financial adviser and, where relevant, a solicitor or tax adviser before taking out any policy or entering into a legal agreement. Insurance provider benefits are subject to change. IGotCover is a trading name of Caspian Assured Ltd, authorised and regulated by the Financial Conduct Authority (FCA reference [FRN]).
