12 key facts about relevant life insurance cover
As a director, you can save up to 50% or more by taking out life insurance through your limited company, compared to a personal policy paid from post-tax income.
See our relevant life vs personal cover comparison and try the calculator.
Here are 12 key facts about relevant life policies (RLPs), including their benefits and pitfalls. You can also browse all relevant life guides or jump to the full FAQs.
1. How do RLPs work – in simple terms?
Relevant life policies (RLPs) provide a tax-efficient death-in-service benefit specifically for directors (and other employees) operating through limited companies. Introduced in 2009, they have become one of the most popular ways for owner-managed companies to provide life cover.
If you’re new to RLPs, try our introductory guide: what is relevant life insurance?
This type of policy pays a lump-sum cash benefit to the director’s nominated beneficiaries if the insured employee dies while the policy is still active and premiums are up to date.
The payout acts as a replacement for the standard death-in-service benefit that most employees would receive if they died while working for an employer.
In this way, directors can provide a safety net to their dependants that is similar to one available to regular employees. Policies are usually placed in a trust – see trusts and relevant life policies.
2. Your limited company owns the policy, not the director
Unlike personal life insurance plans, RLPs are not taken out by the individual directors. Instead, the director’s limited company takes out the policy and owns it.
The company is responsible for paying the ongoing premiums to maintain coverage. Read how to set up relevant life insurance.
3. Premiums can be offset against the company’s Corporation Tax bill
A key tax benefit of RLPs is that the premiums paid by the limited company are usually treated as a legitimate business expense.
This means that they are tax-deductible against Corporation Tax, provided the usual conditions are met. Read more about the wholly and exclusively rule.
As a result, if you are a higher-rate taxpayer, you can save up to 50% compared to paying for a policy out of your post-tax income. See also is relevant life a business expense?
4. No benefit-in-kind issues for the director
There is no benefit-in-kind charge for a director who is the subject of an RLP policy.
Company payments do not need to be declared on a director’s P11D tax return.
This means the company does not have to pay employers’ NICs on premiums. Similarly, the director has no income tax liability. Find out more about the potential tax benefits and National Insurance treatment.
5. You can use multiples of salary + dividends
The potential payout from RLPs is often structured as a multiple of the director’s annual salary and dividends. A common multiple is 15 times the combined value of salary and dividends.
This allows for high policy limits when directors extract profits as dividends.
Unsurprisingly, the multiples you can use depend on the director’s age and other factors. Who can take out a relevant life policy? You can also estimate potential cover using our relevant life calculator.
6. No income tax or IHT issues
If the policy pays out upon the director’s death, the lump sum received by their nominated beneficiaries is not subject to income or inheritance tax. Read our guide to relevant life and IHT.
This tax-free status increases the net value of the payout to dependants. Relevant life policies are normally written into trust, which keeps the proceeds outside the employee’s estate.
Read more in our guide to trusts and relevant life policies.
7. Relevant Life only covers death-in-service
It is important to understand that RLPs only cover death-in-service scenarios.
They do not pay out in the event of critical illness or incapacity if the director survives but cannot work.
Separate critical illness and income protection policies should be considered by directors who need more comprehensive cover.
8. No surrender value
If the limited company stops paying premiums and cancels the RLP cover, there is no surrender value, unlike some other insurance products.
The policy pays out only if the director dies during the active term of the policy. If you later move jobs or close the company, see what happens if you change companies?
9. A limited company cannot be a beneficiary
To prevent tax avoidance, RLPs impose restrictions that prevent the limited company from being a policy beneficiary.
Only individuals, such as family members, and charities can be beneficiaries.
The beneficiaries are normally nominated when the trust is created. See our guide to trusts and relevant life policies for more on how this works.
10. You can have more than one relevant life policy
A director can hold more than one relevant life policy at the same time.
This may be useful if you already have a policy but want to increase your total amount of cover without cancelling the original plan. Insurers will look at the total sum assured across all policies and whether it is reasonable in relation to the director’s remuneration.
Read more about having multiple relevant life policies.
11. No impact on pension lifetime allowance limits
Relevant life policies and pensions operate independently.
Policy premiums do not count towards pension contribution limits, and relevant life benefits were not assessed against the pension lifetime allowance even before it was abolished in April 2024.
12. Beware of artificially inflated policies
As with other company expenses, RLP premiums must be justifiable as wholly and exclusively for business purposes. Artificially inflated policies solely for tax avoidance may be challenged by HMRC.
Still comparing your options? Start with our calculator, or request a free quote if you would like personalised illustrations.