Relevant Life Insurance For Company Directors: Tax Benefits And How It Works

By Author: Assured Life UK
Total Articles: 7
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£160.61 against £81. That is what £100 a month of life cover can cost a limited company, depending on who pays the premium. The first figure is the net cost when a higher-rate director buys personal cover out of salary. The second is the net cost when the company buys a relevant life policy instead. Same cover, same family protected, and a gap of roughly £955 a year.
Most directors never run that comparison. They pay for personal cover from pay that has already been taxed, and nobody mentions that life insurance through a limited company can cost less. Here is how relevant life insurance for directors works, what HMRC expects from it, and where it stops being useful.
What Relevant Life Insurance Is
Relevant life insurance is a term life policy that a company takes out on one employee, usually a director. The company owns the policy and pays the premiums. If the director dies during the term, the money goes to their family or other financial dependants, not to the business. Assured Life UK explains the ...
... basics on its relevant life insurance page.
You will also see it called relevant life cover or a relevant life plan. It is not a savings product. There is no cash-in value, and it exists to protect the people who depend on the director’s income. Many policies include terminal illness cover too, so check the wording.
The product fills a gap. A group life scheme rarely suits a company where the director is the only employee. A relevant life policy gives a small business a way to provide company director life insurance on an individual basis, and because the company pays from pre-tax profit, it counts as tax-efficient life insurance.
How a Relevant Life Policy Works
Five steps take a policy from application to payout.

The company applies for cover on the director’s life and agrees the amount and term.
The insurer assesses the director’s health and earnings, as it would for any life policy.
The company pays the premium, usually monthly, from its own bank account.
The policy is written in trust for the director’s chosen beneficiaries.
If a valid claim is made, the insurer pays the trustees, who pass the money to the family.

Expect the usual underwriting questions: age, smoker status, medical history, occupation and the director’s annual pay. Insurers usually cap the amount of cover at a multiple of the director’s earnings, and the multiple differs between providers.
The trust matters. A policy written in trust is normally kept outside the director’s estate, and it can speed up payment because the money does not have to wait for the estate to be settled.
The Tax Benefits of Relevant Life Insurance for Directors
The relevant life insurance tax benefits come down to four points. The company gets corporation tax relief, the director avoids a benefit in kind, nobody pays National Insurance on the premium, and the payout is normally tax-free.
Corporation tax relief
The company can normally deduct the premiums as a business expense, as long as they are paid “wholly and exclusively” for the purposes of the trade and the policy forms part of the director’s remuneration. Legal & General’s tax guidance sets out these conditions. The value of the relief depends on the company’s profits. For 2026/27, the small profits rate of 19% applies up to £50,000, and the main rate is 25% above £250,000, with marginal relief tapering the rate in between, according to GOV.UK’s corporation tax rates.
No benefit in kind
HMRC does not normally treat the premiums as a benefit in kind when the employer pays them in full. That means nothing goes on the director’s P11D and no extra income tax arises. For comparison, most taxable work benefits trigger employer Class 1A National Insurance at 15%.
No National Insurance
Neither the company nor the director pays National Insurance on the premiums. Employer National Insurance is 15% above the £5,000 secondary threshold in 2026/27, per GOV.UK’s employer rates and thresholds, so avoiding it is a real saving.
A tax-free payout
A valid claim is normally free of income tax, National Insurance and capital gains tax. Written in trust, the payout should not form part of the estate for inheritance tax. The policy should also sit outside your pension allowances.
A Worked Example Using 2026/27 Figures
Take a higher-rate director who wants £100 a month of cover. The assumptions matter, so here they are: the director is paid through salary above £50,270, the company pays the 19% small profits rate, and no Employment Allowance applies.

Personal policy
Relevant life policy

Premium
£100.00
£100.00

Gross salary needed to net £100 (40% income tax, 2% National Insurance)
£172.41
n/a

Employer National Insurance at 15%
£25.86
£0.00

Total cost to company before relief
£198.28
£100.00

Corporation tax relief at 19%
£37.67
£19.00

Net cost to company
£160.61
£81.00

The difference is £79.61 a month, or about £955 a year. If the company pays corporation tax at 25%, the relief is larger and the gap changes. If the director takes dividends instead of salary, the sums change again. Figures are rounded to the nearest penny. Treat the table as an illustration, not a quote.
Some online guides show a personal cost of about £158.93 for the same £100. That figure uses the old 13.8% employer National Insurance rate, which rose to 15% in April 2025.
Want these numbers run on your own company? Request a call back and an adviser will price it with you.
Who Can and Cannot Have One
Eligibility is narrower than many directors expect.
Eligible: Employees of a UK company who are UK resident. That includes directors and salaried partners on the payroll.
Not eligible:

Sole traders, as owners of their own business (see our guide to self-employed life insurance mistakes)
Partners in a traditional partnership
Members of a limited liability partnership
Shareholders who are not employees
Contractors with no employer and employee relationship

A director who takes no salary at all should speak to an adviser before applying. The policy has to sit inside an employment relationship.
Limits and Traps to Know About
The policy has limits, and a few of them catch directors out.
It covers life only. The policy cannot include critical illness cover or income protection. Those need separate policies, and the tax treatment is different.
Salary sacrifice can undo the benefit. If the director effectively pays the premium through a salary sacrifice arrangement, the tax treatment above may not apply.
The “wholly and exclusively” test is real. The policy must be part of the remuneration package and bought for genuine business reasons. Saving tax cannot be the only purpose.
The trust must be set up correctly. Errors in the trust can pull the payout back into the estate.
Leaving the company raises questions. Insurers differ on what happens if the director leaves, so ask before you buy.
Rules change. Rates and reliefs can move in any Budget, so check current figures before you decide.
When It Makes Sense, and When It Does Not
The saving is largest where the company is profitable, the director is a higher-rate taxpayer and a family depends on one income. A contractor running a personal service company is the classic case. So is the owner of a small agency who has no group scheme and no employer pension to lean on.
It makes less sense in a few situations. A sole trader cannot have one at all. A company with uncertain profits may prefer a smaller premium until its finances settle. A director nearing the maximum age for new cover, or one who already has generous cover elsewhere, may see little gain.
If you already hold a personal policy, do not cancel it first. Apply for the relevant life policy, wait until the insurer accepts it and cover has started, and only then review the old one. Your health may have changed since you took out the first policy, and a new application is underwritten on today’s facts. Our main life insurance page covers the personal options.
Relevant Life vs Personal, Group and Key Person Cover

Cover type
Who pays
Who receives the payout
Best suited to

Personal life insurance
The individual, from taxed income
The individual’s family
Anyone, including sole traders

Relevant life insurance
The company
The director’s family
Directors of small limited companies

Group life scheme
The employer
Employees’ families
Companies with a larger workforce

Key person insurance
The company
The company
Protecting the business from losing someone vital

The last row is the one directors confuse most. Key person insurance pays the business to cover lost profit or debt. Relevant life pays the family. Many owner-managed companies need both.
How to Set One Up

Check with your accountant that the company is eligible and that the premium fits your remuneration.
Decide how much cover and for how long. Many directors tie the amount to the mortgage, family income and business debts. Our guide on how much life insurance cover you need shows how to work it out.
Compare the whole market through an FCA-authorised adviser, because insurers differ on pricing, maximum cover and trust wording.
Complete the application, including the health questions, and make sure the trust is set up with the policy.
Put the premium through the company and review the cover each year.

Frequently Asked Questions
Are relevant life premiums tax deductible?
Normally, yes. The company can usually claim corporation tax relief when the premiums are paid wholly and exclusively for the business and form part of the director’s pay. Your accountant should confirm this for your circumstances.
Is a relevant life policy a benefit in kind?
Not usually. HMRC does not normally treat employer-paid premiums as a taxable benefit, so there is no P11D entry and no National Insurance on them.
Is the payout free of inheritance tax?
Usually, when the policy is written in trust. The money sits outside the estate, so it is not normally counted for inheritance tax. A poorly drafted trust can undo this.
Can a director on dividends only have one?
It depends on the insurer and the facts. The policy needs an employment relationship, so a director with no salary should take advice first.
Does it include critical illness cover?
No. A relevant life policy pays out on death, and sometimes on terminal illness. Critical illness cover and income protection are separate products.
Does the company receive the payout?
No. The money goes to the family through the trust. If the aim is to protect the business itself, key person insurance is the relevant cover.
Get the Right Cover for Your Company
Working out whether a relevant life policy fits your company takes a few minutes with the right adviser. At Assured Life UK, an FCA-authorised adviser compares the whole market for you. Our advice is fee-free and comes with no obligation. It helps to have your latest accounts, your salary details and any existing life cover to hand, so the adviser can compare like with like and show you real figures for your company.
Explore relevant life insurance with Assured Life UK or call 020-3983-4078, Monday to Saturday, 9:30am to 7:00pm.
This article is general information, not tax or financial advice. Tax treatment depends on individual circumstances and can change. Rates and thresholds were checked against GOV.UK on 30 October 2026. Speak to an accountant and an FCA-authorised adviser before making a decision.