Relevant Life Insurance

Relevant Life Insurance is a type of business protection that is both a cost and tax-efficient way to provide employees and directors with life cover. In this guide, updated for 2021, we explain everything you need to know about relevant life insurance.

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What is relevant life insurance?

Relevant life insurance is a cost-effective way to provide employees and directors with a death-in-service benefit. Like traditional life insurance, relevant life insurance is payable to the employee's family or financial dependant in the event of their untimely death via a trust.

As we'll explain later in this guide, a significant benefit of relevant life insurance is that it's tax-efficient, making it a great choice for high earning employees, directors and companies.

How does relevant life insurance work?

Relevant life insurance works in much the same way as traditional life insurance, with the most significant difference being that the policy is paid for by a company, not the individual.

In the event that an employee or director who is included on the plan should die during the policy's duration, the insurer will pay a cash lump sum to the individual's beneficiaries through a discretionary trust - usually their family or dependants are named as the trustees.

Relevant life insurance isn't a taxable P11D benefit-in-kind, nor does it count towards an individual's annual pension lifetime allowance, so from an employee's perspective or even a director's, it's a significant benefit.

How does relevant life insurance work
  • 1

    Employer insures employee

    Relevant life insurance is taken out to protect employees or salaried directors.

  • 2

    Relevant Life insurance is written into trust

    By writing the cover into a trust you ensure that beneficiaries receive the proceeds quickly and that they are tax-efficient.

  • 3

    Employee dies (or is diagnosed with a terminal illness)

    The next of kin or beneficiaries make a claim.

  • 4

    The insurer pays the proceeds to the trustees

    The trustees are responsible for looking after the contents of the trust.

  • 5

    The Trustees pay the beneficiaries

    The proceeds are paid and because the policy was written in trust, inheritance tax doesn't apply.

What are the benefits of relevant life insurance?

As we've alluded to, there are benefits of relevant life insurance for employees, directors and companies. In this section, we look at exactly what those are.

Benefits for employees

Providing your employees with a death-in-service benefit like relevant life insurance is a great way to show them that you value them and that you want to look after their families whatever might happen. A relevant life insurance policy gives employees life insurance without them needing to pay any premiums, although depending on how much cover you provide, it may still be worth them taking out an additional policy.  Much the same as a traditional life policy, should the individual die while they're employed and covered, then the scheme will pay out a cash lump sum to their family or chosen beneficiary.

Relevant life cover is especially valuable to high earners, including directors, as it's far more tax-efficient than a personal or group life plan. Unlike group policies, relevant life cover doesn't count towards an individual's annual pension lifetime allowance, which is  £1,073,100 for the 2020/2021 tax year. Because a relevant life policy is always written into trust at inception, the beneficiaries will receive the payment in the most tax efficient manner.

Benefits for business

Relevant life insurance is most often taken out by small businesses that aren't large enough to be able to access a group policy. Unlike a group life scheme, you can take out a relevant life policy even if your small business consists of just a single director. As it's tax-efficient, by being a tax-deductible expense and not qualifying as a P11D benefit-in-kind, it usually makes much more sense for a director to take out a relevant life policy rather than a personal one.

One of the most valuable benefits of relevant life is that the price is fixed for the duration of the plan, unlike a group life policy which is annually reviewed to increase with the age of your workforce each year.

In addition to the benefits to directors of a business, relevant life insurance can be a useful way to attract and retain staff as it demonstrates that you value them and want to care for their family.

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Can I take out a relevant life policy?

A range of employers can access relevant life insurance, with one of the only stipulations being that you aren't a sole trader. All of the following company structures can therefore access these useful policies:

  • White tick
    Limited companies
  • White tick
    Partnerships
  • White tick
    Charities
  • White tick
    Any other structure where there is an employer/employee relationship

At Business Protection Hub we most frequently set up policies for:

  • Contractors and freelancers who run limited companies
  • Company directors
  • Small businesses which aren't big enough for a group life scheme
  • High earning employees that have substantial pension funds

Who can't get relevant life insurance?

The list of who can't get relevant life insurance is relatively short but important to know. The first on the list is sole traders - unfortunately, you need to be a partnership or a limited company to access this type of policy. Secondly, equity partners, meaning those who have shares in a company but aren't employed by it. Finally, partners and spouses are also excluded unless they work for the same firm - relevant life insurance only covers individuals who work for the business and are currently drawing a salary or dividends.

How much relevant life insurance should you get?

How much cover you should get is an important question where multiple factors should be considered in response. If you're taking out cover instead of a personal policy just for yourself or a couple of directors, then we'd recommend you do as you would with a normal life insurance policy and look at all of your financial commitments to work out how much money your loved ones might need should you die.  If you're taking out a policy for your employees, then one would normally suggest that you take some time to consider what multiple of their salary you wish to provide them with and of course what's affordable to the business.

How much does relevant life insurance cost?

The cost of relevant life insurance will vary depending on a number of key factors, some of these you'll have control over and others you won't. They are:

  • The amount of cover you would like
  • The length of the policy (must not exceed age 75)
  • The age of the employees on the policy
  • State of employees’ health
  • Whether employees are smokers
  • LIfestyles and hazardous activities
  • Family health history
How much does relevant life insurance cost

To give you some example prices, we've done a comparison search based on the following criteria - the individual is a healthy non-smoker, they're a Project Manager living in London and they want £300,000 of cover paid by the business over a period of 25 years.

  • 25 Years Old - £8.18 p/m monthly premium
  • 30 Years Old - £10.74 p/m monthly premium
  • 35 Years Old - £14.54 p/m monthly premium
  • 40 Years Old - £21.82 p/m monthly premium
  • 45 Years Old - £34.31 p/m monthly premium
*Pricing accurate as of 16th November 2020
Relevant life insurance cost

How does HMRC  tax relevant life cover?

As we've already mentioned, one of the most significant benefits of relevant life insurance is that it's tax-efficient, and in this section we explore the tax savings in more detail.

Let's start by looking at costs to an individual. If you were to take out a personal life insurance policy instead of relevant life cover, you would first need to pay your employee national insurance contribution and income tax on the money you use for your policy. So straight away, by taking out a relevant life policy through your business you're saving on those elements.

Now, let's look at the savings for a business. Relevant life cover is considered a business expense and therefore is tax-deductible. By taking out a policy through your business, the first saving you enjoy over taking out a personal policy is that you don't need to pay employers’ national insurance contributions on the money used to buy the policy.  Next, as it's a business expense, it'll be deducted from your profits and will therefore reduce your corporation tax bill.

As you can see, in a number of ways relevant life cover is tax-efficient, and in most cases you can save over 40% when compared with taking out a personal policy.

How is the payout taxed?

The payout from a relevant life insurance policy is also tax-free, assuming you write the policy into a trust when you set it up and keep it separate from both your business and your estate.  By keeping it separate you ensure that there are no tax complications, and if you pass away the money doesn't get paid back to the company. Meanwhile, by holding the money outside of your estate,  the payout won't be liable for inheritance tax so your loved ones can access it faster without having to go through probate.

Is relevant life insurance a P11D benefit in kind?

No,  relevant life insurance isn't considered a P11D benefit in kind and therefore employees and directors won't need to pay any additional tax to receive it. This is one of the major reasons why directors often take out a policy rather than a personal one.

What is a relevant life insurance trust?

In several places in this guide, we've mentioned that to make the lump-sum payment tax-free, the policy needs to be written into a trust at inception, but what is a trust?

Relevant life insurance should never be set up without a trust in place as it is the trust that makes it tax-efficient.

A trust exists to receive the payout in the event that the individual receiving cover dies. By writing the policy into trust, you ensure that the lump sum isn't paid back into the business following the death, as that would have tax implications for the company.

The trust also facilitates the transfer of the lump sum in a tax-free manner. If for instance, you didn't have the trust, then the insurer would pay the money directly to your estate and HMRC will charge inheritance tax on the payout, which could be a significant proportion of the funds.

Who are the best providers of relevant life insurance?

With a number of providers in the market, choosing the best option for you can be difficult, which is why we always recommend speaking to us first and getting free advice from one of our financial advisers. The following companies are those that we think are the best in the market (in no particular order):

  • Scottish Widows
  • AIG
  • VitalityLife
  • Royal London
  • Zurich
  • LV=
  • Aegon
  • Aviva
Relevant life insurance providers

Compare the UK’s leading providers of relevant life insurance

Scottish Widows Logo

Scottish Widows

Scottish Widows Protect Relevant Life Cover is a policy that a business can set up to provide a death-in-service benefit for their employees and directors. As you'll see with many providers, Scottish Widows insists that the policy is put into a trust before it starts. Scottish Widows pays out a cash lump sum if your employee dies or is diagnosed with a terminal illness before the end of the policy's end date. You can choose between either level cover, which fixes the payout throughout the policy, or increasing cover, which is designed to protect the policy against inflation.

Key facts:

  • Choose between level or increasing cover
  • Terminal illness cover included as standard
  • Minimum sum assured - £10,000
  • Maximum sum assured - Level = £25m
  • Maximum sum assured - Increasing £15m (up to £30m)
  • Minimum age when cover starts - 18
  • Maximum age when cover starts - 73

For more information please contact us or visit the Scottish Widows website.

AIG Logo

AIG

AIG's Relevant Life Insurance is cover taken out and paid for by a business to protect its employees. It covers both death and terminal illness, where life expectancy is less than 12 months. Similarly to other policies, AIG's must be written into a trust when the policy is taken out. AIG provides both level and Increasing cover, with the latter increasing in line with the Retail Prices Index (RPI) up to a maximum of 10% each year.

Key facts:

  • Choose between level or increasing cover
  • Terminal illness cover included as standard
  • Minimum age when cover starts - 17
  • Maximum age when cover starts - 71
  • Maximum sums assured based on age

For more information please contact us or visit the AIG website.

Vitality Logo

VitalityLife

VitalityLife is a tax-efficient alternative to a death-in-service benefit, that allows you to pay your employees’ beneficiaries a cash lump sum if they die while employed by your company. Similarly to other relevant life insurance providers, Vitality suggests that you can save nearly 50% in tax compared with taking out an ordinary life policy. Designed for company directors, high earners and key employees, VitalityLife is an affordable way to attract and retain the best people.

Key facts

  • Minimum age when cover starts -16
  • Maximum age when cover starts - 70
  • Free Cinema tickets and discounted gym membership
  • Terminal illness cover included as standard
  • Cheaper premiums available for individuals that lead a healthy lifestyle

For more information please contact us or visit the Vitality website.

Royal London Logo

Royal London

Similarly to other top providers, Royal London provides a Relevant Life Plan which is designed for small businesses that aren't large enough to warrant a group life scheme. If an employee dies or is diagnosed with a terminal illness then the policy will pay out. In addition to the core cover, Royal London includes added support which they call "Helping Hand". This support service gives you access to legal helplines, a dedicated nurse and recruitment services should the worst happen and one of your employees falls ill or dies.

Key facts:

  • Helping Hand support service included with every policy
  • Terminal illness cover included
  • Choose between level cover, increasing or decreasing
  • Maximum sum assured based on employee age
  • Minimum age when cover starts - 18
  • Maximum age when cover starts 73

For more information please contact us or visit the Royal London website.

Zurich Logo

Zurich

Zurich Relevant Life is a tax-efficient way for an employer, typically a small business, to provide life cover for an employee. Similarly to other providers, Zurich provides these policies for employers that don't have enough staff to qualify for a group scheme. Zurich pride themselves on the flexibility they provide, giving employers the ability to easily change the policy as their employees' lives change.

Key facts

  • Minimum age at entry - 16
  • Maximum age at entry - 73
  • Choose between level cover, increasing or decreasing
  • Access to additional support via Zurich Support Services
  • Terminal illness cover included

For more information please contact us or visit the Zurich website.

LV= Logo

LV=

Relevant life cover by LV= allows employers to provide death-in-service benefits to their employees. As with all Relevant life policies, LV='s is a tax-efficient plan, set up by an employer that pays out to an employee’s family should they die or be diagnosed with a terminal illness.

Key facts

  • Maximum cover available is £10m
  • Minimum age at entry - 17
  • Maximum age at entry - 69
  • Access LV= Doctor Services if you're a new client
  • Choose between Level or Inflation-linked cover
  • Includes terminal illness cover

For more information please contact us or visit the LV= website.

Aegon Logo

Aegon

Aegon's Relevant Life cover, like the others in this guide, is a form of death-in-service benefit which is set up and paid for by the employer to the benefit of the employee. Most frequently used by smaller businesses, it's a good alternative to group insurance schemes, which often require you to have a certain number of members and doesn’t have a fixed price

Key facts

  • Minimum age at entry - 18
  • Maximum age at entry - 73 (72 for reducing cover)
  • Choose between level, reducing or increasing cover
  • Terminal illness cover included

For more information please contact us or visit the Aegon website.

Aviva Logo

Aviva

Relevant Life Cover by Aviva comes with all of the tax benefits you'd expect and is, therefore, an excellent choice for an employer looking to provide their team with protection. Aviva gives you the choice between life only cover and life cover with serious illness protection. Importantly, both of these include terminal illness cover.

Key facts

  • Minimum age at entry - 18
  • Maximum age at entry - 73 for life only policies
  • Maximum age at entry tor life and significant illness cover - 64
  • Choose between level and increasing cover
  • Terminal illness cover included

For more information please contact us or visit the Aviva website.

Other Types of Business Protection

There are various other types of business protection insurance that work alongside relevant life insurance insurance. Click a link below to learn more or to request quotes:

About Business Protection Hub

We're specialists in business protection insurance, working with hundreds of companies across the UK each year to help them find the right cover. We partner with the 5* rated independent financial advisers at Sandbourne Ltd., who are authorised and regulated by the Financial Conduct Authority, to provide bespoke financial advice to companies. If you would like a quote for relevant life insurance or have a question, please request a quote or contact us.

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Relevant Life Insurance FAQ