Can you add critical illness cover to a relevant life policy?
A relevant life insurance policy is designed to provide life cover for an employee or director.
Many policies also include a terminal illness benefit, allowing the insurer to pay the benefit before death if the policy definition is met.
Critical illness cover is different.
In most cases, it cannot be included within a qualifying relevant life policy.
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 favourable tax treatment, most policies cannot include critical illness cover.
If critical illness protection is required, it is normally 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’s rules allow a relevant life policy to receive favourable tax treatment only if it satisfies the conditions for a qualifying relevant life policy.
In practice, this means the policy is designed to provide death benefits. Many policies also include a terminal illness benefit.
You can read more in our guide to relevant life insurance and terminal illness.
Adding critical illness cover would usually change the nature of the policy, 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 arrange a separate critical illness policy alongside their relevant life insurance.
The critical illness policy can normally be taken out personally or, in some circumstances, through the business depending on the insurer’s terms and your accountant’s advice.
Because it is a separate policy, the relevant life trust arrangement remains unaffected.
See trusts and relevant life policies for more information.
Standalone critical illness policies usually pay a lump sum if the insured person is diagnosed with one of the medical conditions listed in the policy, such as certain cancers, heart attacks or strokes.
MoneyHelper provides a useful overview of how critical illness cover works.
If you want to compare personal and company-based arrangements, see relevant life vs personal life insurance.
Tax treatment
Standalone critical illness cover does not usually receive the same favourable tax treatment as a qualifying relevant life policy.
If the company pays the premiums, the tax treatment will depend on the circumstances and the type of policy that has been arranged.
In some cases, the premiums 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 insurance.
What does HMRC say?
HMRC’s favourable tax treatment depends on the policy satisfying the conditions for a qualifying relevant life policy.
Those conditions are based on the rules for excepted group life policies, which are intended to provide death benefits rather than critical illness protection.
You can read HMRC’s guidance in the Employment Income Manual (EIM15045).
Our guide to HMRC’s rules on relevant life insurance explains the qualifying conditions in more detail.
What this means in practice
You usually cannot add critical illness cover to a qualifying relevant life policy without affecting its tax treatment.
If additional protection is required, the usual approach is to combine a relevant life policy with a separate critical illness policy or an income protection policy.
If your circumstances change — for example if you leave the company — see what happens if you change companies.
Frequently asked questions
Can I add critical illness cover to a relevant life policy?
Usually no. Adding critical illness cover would normally prevent the policy from qualifying as relevant life insurance for tax purposes.
Can I buy critical illness cover separately?
Yes. Many directors arrange a separate critical illness policy alongside their relevant life insurance.
Is terminal illness the same as critical illness?
No. Terminal illness benefit is different from critical illness cover and is subject to the insurer’s policy definition.
Does every relevant life policy include terminal illness benefit?
No. Many policies do, but it depends on the insurer and the policy terms. Read more in this guide to terminal illness benefit.