Many limited company directors still pay for their personal life insurance out of take-home pay. After income tax, National Insurance, and however they extract money from the company, that premium is costing more than the number on the direct debit suggests. There is a more efficient way to structure this, and it has been sitting in HMRC’s rulebook for nearly two decades.It is called a relevant life policy. If you run a limited company and currently hold a personal life policy paid from your own pocket, it is worth understanding properly.
What a relevant life policy actually is
Relevant life insurance is a single-life, death-in-service arrangement paid for by your limited company. The company owns the policy and pays the premiums directly to the insurer. If you die during the policy term, a lump sum is paid to your beneficiaries via a trust. The cover functions like the death-in-service benefit a large employer might offer staff, but structured for a single individual, which makes it practical for small businesses and company directors.
HMRC treats these as excepted group life policies under section 393B of ITEPA 2003. The conditions that must be met include: benefits limited to death (with terminal illness typically acceptable), no surrender value, an upper age limit not exceeding 75, and beneficiaries restricted to individuals or charities. Tax avoidance must not be the main purpose of the arrangement. (GOV.UK / EIM15045)
There is no formal HMRC approval process. The policy either meets the conditions or it does not, and both the insurer and the adviser are responsible for confirming that it qualifies.
Why it is more tax-efficient than personal cover
When you pay for personal life insurance, you are paying from net income. For a higher-rate director, that means the money has already been through income tax and National Insurance before it reaches the premium. A relevant life policy sidesteps this entirely. The company pays the premiums directly and, provided the policy forms part of a genuine remuneration package and meets HMRC’s “wholly and exclusively” test, those premiums are treated as an allowable business expense, reducing the company’s corporation tax liability.
Crucially, the premiums are not treated as a benefit in kind for the director. There is no P11D charge, no personal income tax on the value of the premium, and no additional National Insurance contributions from either side. (GOV.UK / EIM21800)
The payout is free from income tax and National Insurance
When a claim is paid, the lump sum is distributed through the discretionary trust to the nominated beneficiaries. Because the benefit is structured this way, it falls outside the director’s estate for income tax and National Insurance purposes. The family receives the full amount, not a reduced figure after deductions. (GOV.UK / IHTM17091)
This is not unique to relevant life policies. Any life insurance held in trust is generally treated this way. What makes a relevant life policy stand out is that it combines this trust structure with company-funded premiums, without triggering a personal tax charge in the process.
It sits outside pension allowances
This is a detail that matters more than many directors realise. Relevant life cover sits outside registered pension scheme benefits. The payout does not count towards either the pension annual allowance or, following the abolition of the lifetime allowance in April 2024 and its replacement by the lump sum and death benefit allowance, the new allowance thresholds that apply to registered scheme benefits. (GOV.UK / Finance Act 2024)
In practical terms, this matters for directors who are making meaningful pension contributions or who have significant pension pots already. A relevant life policy gives them a separate layer of death-in-service protection without eating into the tax-efficient space available inside their pension. It is a clean separation that a group life scheme held within a registered arrangement cannot offer.
It is not usually subject to inheritance tax
Because the policy is written into a discretionary trust from the outset, the lump sum does not normally form part of the director’s estate on death. That means there is no inheritance tax exposure on the payout in the typical scenario where funds are distributed promptly to beneficiaries.
There is a nuance worth flagging here. Because the discretionary trust holds relevant property, periodic charges can arise. In practice, an entry charge is unlikely because the policy typically has a nominal value while active. A ten-year anniversary charge could apply if benefits have been paid into the trust but not yet distributed to beneficiaries. Exit charges may also apply when assets leave the trust. These are edge cases, but they are not theoretical.
A practical example
Say you are a director drawing a salary and dividends, with total remuneration of £80,000 per year. You currently hold a personal level-term policy with a £400,000 sum assured and pay £60 per month from your personal account.
If you cancel that policy and your company takes out a relevant life policy for equivalent cover, the company pays those premiums directly. The company claims them as an allowable business expense. You do not pay income tax or National Insurance on the premium value. If you pay corporation tax at 25%, the effective cost to the company after tax relief is reduced accordingly.
Over a 20-year term, the difference in real cost between the two structures can run to thousands of pounds, simply by using the company structure you already have. An independent financial adviser or protection specialist can model the exact saving based on your remuneration and tax position.
Who is and is not eligible
To take out a relevant life policy, you need to be a UK-resident employee of a UK-registered limited company. Directors on the payroll qualify, because HMRC treats directors as employees for National Insurance purposes. Shareholders who are not also employees are not eligible, and neither are non-salaried directors, sole traders, or self-employed equity partners. (Quality Company Formations)
The policy must be in place before the director reaches age 71, and cover must cease by age 75.
Is relevant life insurance good for limited company directors?
For most directors who need personal life cover and are currently funding it from their own pocket, the answer is yes. It does the same job as a personal policy, the payout goes to the same people, but the tax treatment is materially better at every stage: the premiums, the benefit, and the estate planning position.
The one area that requires careful handling is the trust structure. The discretionary trust is not optional; it is what makes the tax treatment work. Setting it up correctly, and keeping an eye on the trust’s ten-year anniversary if benefits are ever paid and not distributed, is where good advice genuinely earns its fee.
If you currently pay for personal life insurance and you operate through a limited company, it is a straightforward question worth asking your accountant or a protection adviser: would a relevant life policy give you the same cover for less?
