Can you add critical illness to a relevant life policy?
A relevant life insurance policy normally provides life cover only. It pays a lump sum if the insured person dies during the policy term or is diagnosed with a qualifying terminal illness.
Relevant life insurance is designed to provide tax-efficient death-in-service style cover for employees and directors. Because of the HMRC rules that allow the tax advantages, most policies cannot include critical illness cover.
If you want to take out critical illness protection, this usually has to be arranged as a separate policy.
For a general overview see 12 key facts about relevant life insurance.
Why critical illness cover isn’t usually included
HMRC rules allow a relevant life policy to receive favourable tax treatment only if it is set up primarily to provide death benefits. In practice this means the policy normally covers death and terminal illness only.
Adding critical illness cover would usually change the policy into a different type of insurance arrangement, meaning it may no longer qualify for the usual Corporation Tax relief or benefit-in-kind exemption.
For more detail see:
Arranging critical illness cover separately
Many company directors choose to take out a separate critical illness policy alongside their relevant life cover.
This separate policy can normally be arranged personally, or sometimes through the business depending on the insurer’s terms and your accountant’s advice.
Because the policy structure is different, the trust arrangement for the relevant life plan remains separate. See trusts and relevant life policies for more detail.
Standalone critical illness policies pay a lump sum if the insured person is diagnosed with a specified medical condition such as cancer, stroke or heart attack. MoneyHelper provides a useful overview of how critical illness cover works.
If you want to compare personal and company-based cover, see relevant life vs personal life insurance.
Tax treatment
Unlike a qualifying relevant life policy, critical illness cover normally does not attract Corporation Tax relief when arranged through a company.
If the company pays the premiums, they may be treated as a benefit in kind for the employee or director.
For comparison, see how relevant life insurance is set up and what affects the cost of relevant life premiums.
What this means in practice
You usually cannot add critical illness cover to a relevant life policy without losing the tax advantages that make the arrangement attractive.
If additional protection is required, the usual approach is to combine a relevant life policy with a separate critical illness or income protection plan.
If your circumstances change — for example if you leave the company — see what happens if you leave your company.