Relevant Life vs Personal Life Insurance
Both protect your family from the same risk. The difference is that relevant life can be funded by your business as an allowable expense.
Director of a limited company? Compare both options on your figures.
Get a Free Quote →The short answer
A tax-efficient life insurance term policy your limited company takes out and pays for on your behalf, so your family receives a lump sum if you die.
A policy you take out and pay for yourself, which pays out to your family if you die during the term.
Both pay your family a lump sum if you die during the term. The difference is who owns and funds the policy. With relevant life the company pays the premiums as a business expense; with personal life you pay them from income you have already been taxed on.
Which is right for you?
- You pay yourself a low salary and do not want premiums based on drawings that do not reflect your true worth
- You want your limited company to pay the premiums and put them through as a business expense
- You have no group death-in-service scheme because you are the only employee, or one of very few
- You are self-employed with no company structure to pay premiums on your behalf
- You are employed but your employer offers no life cover, or you would lose cover if you changed jobs
- You need cover to protect a personal mortgage rather than business debts
- Your partner or dependants need financial protection independently of your employment status
Not sure which side you fall on? We will help you weigh it up.
Get a Free Quote →Side-by-side comparison
| Comparison | Relevant Life Insurance | Personal Life Insurance |
|---|---|---|
| Who pays | Your limited company pays the premiums as a business expense. | You pay from personal income, after tax and NI. |
| Tax treatment | Premiums are usually corporation tax deductible. No income tax or NI on the benefit.Better for directors | Premiums are paid from taxed income. No further tax relief available. |
| Payout and estate | Paid into a discretionary trust that is outside the estate and is not usually subject to inheritance tax.Better for IHT planning | Can be written in trust, but this requires a separate step and is not always done. Payout may fall into your estate if not. |
| Portability | Tied to your company. Cover ends if you close the business or become an employee elsewhere. The policy can be converted to a personal policy. | Yours to keep regardless of employment status, company structure, or career changes.More flexible |
| Eligibility | Must be employed by a UK limited company or limited liability partnership. Sole traders and partnerships cannot use it. | Not dependent on job or business structure.Broader access |
| Cover amount | The maximum payout depends on the employee’s age and total remuneration package (salary, bonuses, and regular dividends), typically up to around 25 times remuneration, subject to insurer and HMRC limits. | You can insure for any amount the insurer will underwrite.Higher ceiling |
| Setup complexity | Requires a discretionary trust and ongoing compliance with HMRC rules. | Straightforward to arrange and usually simpler to set up. |
| Who it suits | Limited company directors who want their business to fund cover tax-efficiently. | Anyone who needs personal protection, not tied to an employer, for their family or mortgage. |
Want these figures worked out for your circumstances?
Get a Free Quote →Real-world scenarios
Illustrative examples showing how the decision tends to play out. Names and figures are for illustration only.
Sandra, limited company director with an old personal policy
Take Sandra, a director with a profitable limited company, a partner, children and a mortgage. The business is run carefully. Dividends are planned. Costs are watched. Her life insurance, though, is still a personal policy taken out years ago.
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If she dies unexpectedly, a personally owned policy will usually form part of the estate, and HMRC says insurers will often wait for probate documents before paying. That can leave her family dealing with the business, the household and the legal process all at once.
Now take the same need for cover but arrange it as relevant life through the company and write it into trust from the start. The company pays the premium. The qualifying element can fall outside the benefits charge. No Class 1A NIC is due where the exemption applies. The trust is there to direct the proceeds to the family without relying on the estate process in the same way. The cover is still there to protect the family, but the route the money takes is cleaner and, in most cases, quicker.
Barry, 40, director of a small consultancy
Take Barry, 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. He wants £750,000 of life cover over a 25-year term.
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Through a personal policy, he might pay around £50 per month in premiums. To fund that £50, he needs 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 Barry’s estate for inheritance tax purposes.
Louise, director with an existing personal policy
Louise is a director who draws a salary, takes the rest through dividends, and already has a personal life policy. The cover itself may be sensible. The tax route is not.
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Each premium is funded from money that has already moved through the company and into her hands. If similar cover is instead arranged as relevant life, the company pays the premium, the section 307 exemption may keep the qualifying element outside the benefits code, and no Class 1A NIC is due where the exemption applies. If it is also written in trust, the trustees rather than the estate can receive the payout, which is exactly why relevant life is often a better fit for directors with dependants.
The rule of thumb
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Get a Free Quote →Frequently asked questions
Do I need to be a company director to get relevant life insurance?
Can sole traders get relevant life insurance?
Does relevant life count as a benefit in kind?
How much could I save with a relevant life policy compared to a personal life policy?
Can I switch from personal to relevant life insurance?
Does a relevant life policy form part of my estate?
Related decision guides
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