Relevant Life Cover
- Taylor Keeble
- 2 days ago
- 3 min read
For small businesses, providing life insurance for directors or employees can be challenging. Many companies cannot offer large group schemes due to cost or administrative complexity. Relevant Life Cover is a tax-efficient solution designed for small companies or single-director businesses, giving the same protection as a “death-in-service” benefit but in a tailored and compliant way.
What Is Relevant Life Cover?
A Relevant Life Policy is a life insurance policy arranged and paid for by the employer. It provides a lump-sum payment to an employee’s beneficiaries in the event of death during employment. Unlike ordinary personal life insurance:
The employee pays no Income Tax or National Insurance on the premiums.
The employer can deduct premiums as a business expense for Corporation Tax.
The payout is usually outside the employee’s estate for Inheritance Tax, because the policy is placed in a discretionary trust.
This combination of tax relief and estate planning makes Relevant Life Cover an attractive solution for small business owners and their employees.
Key Conditions for Tax Efficiency
To maintain the tax-free status, the policy must meet specific HMRC rules:
The policy can only provide death or terminal illness benefits. Critical illness, disability, or cash-in features are not allowed.
Cover cannot extend beyond the employee’s 75th birthday.
The policy cannot be cashed in for a lump sum during the term.
Proceeds must go to individuals, charities, or trustees, not the employer.
Policies must be written in trust from the outset to secure the tax treatment and bypass probate.
The policy must be arranged for employee protection, not primarily to avoid tax.
Failing any of these rules may result in the premiums or benefits being treated as taxable, potentially under the EFRBS (Employer-Financed Retirement Benefit Scheme) rules or as a benefit in kind.
Why Relevant Life Cover Matters
For employees, Relevant Life Cover offers peace of mind: the payout goes directly to the chosen beneficiaries and is typically free from Income Tax and Inheritance Tax. The trust structure allows families to access the funds quickly without going through probate.
For employers, premiums are usually fully deductible for Corporation Tax, reducing the cost of providing the benefit. Unlike salary increases or bonuses, Relevant Life premiums do not trigger employer National Insurance contributions, making it a more cost-effective way to reward and protect employees.
Comparing Relevant Life Cover with Group Life/Death-in-Service Policies
Larger companies often provide group life or death-in-service policies, which are generally tax-efficient and provide life cover to all employees. However, these can be impractical for smaller businesses due to:
The cost per member
Administrative complexity
The requirement to cover many employees rather than just directors or key staff
Relevant Life Cover provides similar tax advantages but can be targeted to a single employee or a small group. While group policies are typically exempt from certain charges if structured correctly, Relevant Life Cover gives small businesses flexibility and control over premiums, policy terms, and beneficiaries.
Practical Tips and Considerations
Strict compliance — Minor deviations such as adding disallowed benefits, allowing cash-in options, or exceeding the age limit may jeopardize tax advantages.
Document business purpose — HMRC may require proof that the policy is genuinely for employee protection.
Trust structure — Properly set up discretionary trusts ensure the payout bypasses probate and remains outside the estate.
Review regularly — Policies should be reviewed if circumstances change, such as an employee leaving or company growth.
Speak to an Expert
For very small and OM businesses, and company directors, Relevant Life Cover offers a smart, tax-efficient way to provide valuable life insurance protection. When set up correctly, it safeguards employees’ families, avoids unnecessary tax liabilities, and allows the company to claim Corporation Tax relief on the premiums.
It’s a practical solution for directors or key employees who want life cover without the added cost and complexity of a group scheme.
Authored by: London Team
