Most company directors sort their life insurance the same way they sort their personal current account: they open a personal policy, pay the premiums from their own pocket, and move on. It gets the job done. But for limited company directors, this approach quietly costs more than it should.
Relevant life insurance is a type of life insurance policy that is written through a discretionary trust and paid for by the employer. The premiums are treated as an allowable business expense, meaning the company pays them before tax is applied. The payout sits outside the director’s estate for inheritance tax purposes. And unlike a group life scheme, which typically requires a minimum number of employees, relevant life works for a company of one.
That last point matters. A sole director running a limited company qualifies. So does the HR director of a 500-person firm who wants cover above their group scheme limit. The structure of a limited company, regardless of size, is what makes it possible.
What the tax treatment actually looks like
The savings come from several angles. When a company pays relevant life premiums, those premiums are generally free of income tax and National Insurance for the employee. The company treats them as a business expense, which reduces corporation tax. Taken together, that tax efficiency can save a director up to 49% compared to paying for a comparable personal policy from post-tax income.
A quick example makes this concrete. Suppose a 45-year-old director needs £1 million of life cover. Through a personal policy, they’re paying premiums from their net salary, so the real cost, after income tax and potentially National Insurance contributions, is considerably higher than the premium itself. Through relevant life, the company pays the premium directly as a business expense. No income tax. No NI. Corporation tax relief on top. The same cover costs the director less, and it costs the business less than taking the equivalent amount as salary would.
A practical scenario
James is 42 and runs a consultancy as its sole director. His mortgage is £450,000, and he has two children. He looked at personal life insurance and found a policy for around £80 per month. Reasonable enough until he thought about what that £80 actually represented.
To pay £80 per month as a personal premium, James needs to draw income, pay 40% income tax on it, and then pay the premium. The effective cost is closer to £133 per month from gross earnings. Through a relevant life policy, the company pays the same £80 premium directly as a business expense. The corporation tax relief reduces the net cost to around £65. That’s a meaningful difference over a 20-year term.
The payout, if it were needed, would go to a discretionary trust, not to James’s estate. That keeps it outside inheritance tax.
Why directors of larger companies use it too
It’s tempting to assume relevant life is mainly for small company directors who don’t have access to a group scheme. In reality, senior employees and directors at larger businesses use it to bridge gaps in group cover.
Most group life schemes pay out a multiple of salary three or four times, typically. For a director on a high salary, or one whose remuneration is structured partly as dividends, that multiple may leave a significant shortfall. A relevant life policy can sit alongside the group scheme, covering the gap without the group scheme needing to be renegotiated.
It’s also worth knowing that dividends can complicate things. Cover is usually based on total remuneration, but how insurers treat dividends varies. Some count them, some don’t. Getting this right matters, particularly for directors whose salary is deliberately kept low for tax efficiency.
How relevant life compares to a personal policy
| Feature | Relevant Life Policy | Personal Life Policy |
| Who pays the premium | The limited company | The individual |
| Tax treatment of premiums | Allowable business expense; no income tax or NI | Paid from post-tax personal income |
| Inheritance tax position | Sits in a discretionary trust, outside the estate | Usually forms part of the estate unless written in trust separately |
| Minimum employees required | None, works for a single director | N/A |
| Available to | Directors of limited companies | Anyone |
| Suited to sole traders | No | Yes |
What it doesn’t cover and who it doesn’t suit
Relevant life is specifically a death benefit. It pays out on death or a terminal illness diagnosis. It does not include critical illness cover, income protection, or any living benefit unless those are arranged separately.
It also only works within a limited company structure. Sole traders and self-employed individuals without a limited company cannot use it. For them, a personal life policy or critical illness cover is the appropriate route and both are worth having, depending on their circumstances and financial commitments.
This distinction matters because advisers and brokers occasionally see clients who’ve set up a limited company partly to access benefits like this. That’s a legitimate consideration, but the company needs to be genuine and operational. The tax treatment reflects a real employer-employee relationship, even when the director and employee are the same person.
Finding the right policy without spending a week on it
The relevant life market has a reasonable number of providers, and premiums vary. Comparing them takes time that most directors would rather spend elsewhere.
IGotCover is a specialist business protection broker that handles the search and comparison process. Rather than approaching multiple insurers directly or using a generic comparison tool that may not account for the nuances of directorial remuneration, working with a specialist means the policy is structured correctly from the start: right trust deed, right sum assured, right treatment of dividends.
Getting this wrong at the outset tends to create problems later. The trust documentation, in particular, is not something to leave to chance.
The practical reality
Directors who find out about relevant life often wish they’d known sooner. That reaction is common and understandable. The savings are real, the structure is straightforward once explained, and the main barrier is simply not knowing it exists.
If you run a limited company and you’re currently paying for life insurance personally, it’s worth finding out whether relevant life would cost you less for the same cover. In most cases, it will.
