How to set up relevant life insurance
Setting up a relevant life insurance policy is usually straightforward, but there are a few key steps to follow — particularly around the trust structure and the way the policy is arranged through your limited company.
A relevant life policy is a type of life insurance arranged by a company for an employee or director, with premiums typically paid by the business rather than the individual.
Setting up relevant life insurance normally involves five main steps: deciding the level of cover required, comparing insurers, completing the application and underwriting process, placing the policy in trust, and arranging payment from the company.
Most directors arrange the policy through an adviser so the trust documentation and tax treatment are handled correctly.
For background, see what relevant life insurance is or review our 12 key facts guide.
Steps to set up relevant life insurance
| Step | What happens |
|---|---|
| 1 | Decide how much life cover you need |
| 2 | Compare insurers and obtain quotes |
| 3 | Complete the application and medical questions |
| 4 | Place the policy in trust |
| 5 | Start the policy and arrange company payments |
1. Decide how much cover you need
Start by estimating the amount your family or dependants would require if you died during the policy term.
Many directors base this on a multiple of annual income — for example 10–25× salary and dividends — or on an amount sufficient to clear mortgages, loans and provide financial support for dependants.
You can estimate a suitable level of cover using the relevant life insurance calculator.
2. Compare insurers and premiums
An adviser such as Broadbench can compare providers and policy terms across the market.
Each insurer has different limits on cover levels, maximum entry ages and medical underwriting requirements. An adviser can confirm which insurers support company-paid policies and manage the paperwork.
To understand what affects pricing, see what determines the cost of relevant life premiums.
You can also read our guide explaining the tax benefits of relevant life insurance.
3. Complete the application and medical questions
The director or employee completes a short application with personal details and medical history.
For larger sums assured, insurers may request additional underwriting such as a nurse screening, blood test, or a GP report.
Once underwriting is complete and the insurer is satisfied, the final policy terms are confirmed.
See also who can take out a relevant life policy.
4. Put the policy in trust
Every relevant life plan must be written under a discretionary trust. This ensures that if a claim occurs, the payout goes directly to the beneficiaries rather than to the company or the director’s estate.
An adviser normally prepares the trust documentation and arranges for it to be signed electronically or on paper.
You can learn more in our guide to relevant life insurance trusts.
5. Start the policy and set up payments
Once the trust documentation is signed and accepted by the insurer, the policy becomes active.
The company then pays the premiums monthly or annually from its business account.
In many cases the premiums qualify as a business expense for Corporation Tax purposes, provided the policy meets HMRC requirements. See whether relevant life insurance counts as a business expense.