Who can take out a relevant life policy?
A relevant life insurance policy can only be taken out by a UK business for the benefit of an employee or director. It is a type of employer-paid life cover designed to provide a tax-efficient death-in-service style benefit for individuals working within a limited company or incorporated business.
Relevant life insurance is available to employees and directors of UK limited companies and LLPs. The policy is arranged and paid for by the business, while the individual employee is the life insured.
Sole traders and traditional partnerships cannot take out relevant life policies because there is no employer–employee relationship.
For background, see what relevant life insurance is or review our 12 key facts guide.
Eligible businesses and individuals
To qualify, there must be an employer–employee relationship. The policy is owned and paid for by the company, while the person insured is an employee or director.
This means relevant life policies are commonly used by:
- Limited company directors – including one-person companies
- Employees of UK limited companies
- Members of LLPs receiving remuneration through the business
- Businesses that want to provide life cover as part of an employee benefits package
The company pays the premiums directly, and the policy is normally placed in a discretionary trust so that any payout goes to the employee’s chosen beneficiaries.
For details of the process, see how to set up relevant life insurance.
Who cannot take out a relevant life policy?
Because HMRC rules require an employer–employee relationship, sole traders and traditional partnerships cannot take out relevant life insurance.
Individuals in those situations can still arrange personal life insurance, but they will not receive the same potential tax advantages.
Similarly, a relevant life policy cannot cover family members who are not employees or individuals who are not on the company payroll.
If you are self-employed and looking for personal protection instead, MoneyHelper explains how standard life insurance works.
Ownership and control of the policy
The company is the policyholder and pays the premiums. The individual insured does not personally own the policy.
If the insured employee leaves the company, the policy may be cancelled or continued depending on the insurer’s rules and the agreement between the parties.
See what happens if you leave your company for a full explanation.
Why eligibility matters for tax treatment
For premiums to qualify as a potential business expense, the policy must meet HMRC’s “wholly and exclusively” test. This means the cover must be provided as a legitimate employee benefit rather than personal protection arranged through the business.
When structured correctly, companies can usually deduct the premiums for Corporation Tax purposes and the insured employee normally does not face a benefit-in-kind charge.
For more detail see: