As a business owner, you are used to juggling costs. You treat every expense with scrutiny, asking yourself two questions: “Do I need this?” and “Is it tax deductible?”
When it comes to protecting your family, you might think you have to pay for it out of your own pocket, after you’ve already paid tax on your salary. But what if there was a way to pay for life cover through your business, save up to 49% in tax, and still ensure your family receives a tax free lump sum?
This isn’t a loophole. It’s a government-approved solution called Relevant Life Insurance.
At Pineapple Insurance Services, we specialise in helping UK directors and employers set up robust business protection that makes financial sense. In this complete guide, we’ll explain how you can turn a personal cost into a smart business expense.
What is Death in Service Benefit?
Death in service cover is a workplace benefit. If you die while employed by the company, your employer may pay a tax free lump sum to your nominated beneficiaries. This is known as a death in service payment, and it’s often linked to your company pension scheme. It’s typically calculated as two to four times your annual salary, but the exact amount depends on your employer.
These payments are usually made via a discretionary trust, which helps avoid inheritance tax and speeds up the payment process.
Life insurance cover is a personal policy you take out yourself. It pays a life insurance payout to your chosen beneficiaries if you pass away during the policy term. You choose the amount, the length of cover, and who receives the money.
Unlike death in service, your cover isn’t tied to your job. It continues regardless of who you work for, offering long-term protection that stays with you.
What is Relevant Life Insurance?
In simple terms, a Relevant Life Plan is a “Death in Service” policy for one person.
Traditionally, Death in Service benefits were only available to employees of big corporations who were part of large group schemes.
If you were a high-earning contractor, a consultant, or the director of a small limited company, you were locked out of these efficient plans. You had to buy personal life insurance from your post-tax income.
Relevant Life changed the rules. It allows a business to take out an individual policy on an employee (or director). The business pays the premiums, but the policy pays out to the individual’s family.
Because the policy is written into a discretionary trust, the payout sits outside of the business’s assets and the individual’s estate.
Who Is It For?
Relevant Life is a game-changer, but it isn’t for everyone. It is specifically designed for:
• Limited Company Directors: If you run your own Ltd company, this is arguably the most tax efficient way to buy life cover.
• High Earners: Employees who have a large pension pot and don’t want their death benefits to count towards their pension allowance.
• Small Businesses: Companies with too few staff to qualify for group schemes.
Important Note: It is generally not available for sole traders or equity partners in a Limited Liability Partnership (LLP). If you fall into this category, you may need to look at personal life insurance or Income Protection instead.
Unsure if your business structure qualifies? Read our detailed breakdown: Is Life Insurance Tax Deductible in the UK
Comparison
| Who provides the benefit? | Death In Service | Life insurance |
|---|---|---|
|
Who provides the benefit? |
You, through an insurance provider |
Your Employer |
|
Payout Amount |
Typically 1-4 times your salary |
Flexible, based on your needs & policy choice |
|
Medical Exam |
No Medical Exam required |
May require, depending on policy |
|
Cost |
Low cost or free (employer paid) |
Premiums based on health, age and coverage level |
The primary reason our clients choose Relevant Life over a standard personal policy is the tax savings. Because HMRC treats these premiums as an allowable business expense, the savings occur at three different levels:
1. Corporation Tax Relief
Because the premiums are paid by the company “wholly and exclusively” for the purposes of trade, they are usually tax deductible. This means your business can offset the cost against its profits, reducing your Corporation Tax bill.
2. No National Insurance
If you paid for a personal policy, you would have to pay yourself the salary first (suffering Employer and Employee National Insurance). With Relevant Life, there is no NI to pay on the premiums.
3. No Benefit in Kind
Unlike a company car or private medical insurance, a Relevant Life policy is not treated as a benefit in kind. This means you (the employee) do not have to pay Income Tax on the premiums, and you don’t need to declare it on your P11D form.
The Real-World Difference
Let’s say you want a policy that costs £100 a month.
• Personal Policy: You need to earn roughly £160-£190 (depending on your tax band) just to be left with the £100 net cash to pay the insurer.
• Relevant Life: Your company pays £100. That’s it. Plus, the company saves 19-25% of that in Corporation Tax relief.
Check out this page
Relevant Life vs. Personal Life Insurance: How Much Can You Save?
How The Payout Works: Trusts and Terminal Illness
One of the strict rules of Relevant Life is that it must be written into a discretionary trust from day one. This sounds complicated, but at Pineapple Insurance, we handle the paperwork for you.
Putting the policy in trust is vital for two reasons:
1. Inheritance Tax (IHT): The payout does not become part of your legal estate. This means your beneficiaries receive the full amount without losing 40% to Inheritance Tax.
2. Speed: Because the money doesn’t go through probate, the trustees can pays out a tax free lump sum to your family quickly—often when they need it most.
A Relevant Life Plan is strictly a life insurance policy. To meet HMRC’s tax-advantaged rules, it can generally only include Life Cover and Terminal Illness cover.
• Terminal Illness: If you are diagnosed with less than 12 months to live, the policy pays out early.
• Critical Illness: Standard Relevant Life policies cannot include Critical Illness or Illness Cover (like cancer or heart attack cover) without losing their tax benefits. If you need Critical Illness protection, this is usually set up as a separate personal policy paid from your net income.
Relevant Life vs. Group Schemes
If you are growing your business, you might be wondering if you should just set up a Group Life Scheme for your team instead.
Group schemes are fantastic for covering the whole workforce efficiently. They are cheaper per person and often don’t require medical underwriting. However, Relevant Life is often superior for the Directors or key senior staff because:
• Higher Cover Limits: Group schemes might be capped at 4x salary. Relevant Life can often cover up to 15x or 20x salary + dividends.
• Portability: If you sell the business or leave, you can often take a Relevant Life policy with you (personally), whereas you leave a Group Scheme behind.
The "Must-Know" Rules
Before you rush to set this up, there are a few boxes to tick to ensure the tax man stays happy:
1. Age Limits: Most policies run until age 75.
2. UK Residency: The life assured must usually be resident in the UK.
3. Beneficiaries: The payout must go to individuals (family) or a charity, not back to the business. (If you want to protect the business against the loss of a key staff member, you need Key Person Insurance instead).
How Long Should It Last?
Policies are often linked to specific business needs—such as the length of a loan, a planned business exit, or a critical project. You might choose a short term (e.g. five years) or something more flexible depending on the risks involved.
What If the Key Person Suffers a Critical Illness?
Summary: Is It Right for You?
If you are a director of a limited company paying for life insurance out of your own pocket, you are likely paying 40% to 50% more than you need to.
By switching to a Relevant Life policy with Pineapple Insurance Services, you can:
• Treat premiums as a business expense.
• Avoid National Insurance and Income Tax on the premiums.
• Protect your family with a substantial tax-free lump sum.
• Keep the payout safe from Inheritance Tax in a discretionary trust.
It is the smartest, most tax efficient way to secure your family’s future using your business revenue.
Stop paying more tax than necessary. Contact the team at Pineapple Insurance Services today. We will compare the whole UK market to find you the most competitive Relevant Life protection for your specific needs.
Check out our other page:
Contractor Life Insurance UK
