Relevant life insurance when company profits are low or uncertain

Relevant life insurance is often presented as a tax-efficient benefit for directors of profitable companies.

In practice, many small limited companies do not have a predictable annual turnover.

If you’re a contractor, you’ll experience times when you’re on the bench; small consultancies often experience fallow periods. Similarly, new companies take time to build up regular revenue streams.

This is why many company directors ask if it makes sense to invest in a relevant life policy if your income is unpredictable.

The short answer is yes, in most cases.

Why directors hesitate

For most directors, the concern is not the monthly premium itself. Relevant life policies often cost well under £100 per month. Hesitation usually comes from uncertainty about the future, rather than current affordability.

Directors often question whether premiums can still be paid during loss-making periods, whether expenses remain legitimate when profits dip, and what happens if the company stops altogether for a few months.

These are sensible questions, particularly for one-person companies where the director is solely responsible for the financial health of the business.

Relevant life is not linked to profits

Relevant life insurance is an employer-provided benefit. The company pays the premiums to provide life cover for a director or employee.

There is no requirement that the company be profitable when the premiums are paid. What matters is that the expense is incurred wholly and exclusively for the purposes of the business, and that the company is able to meet the cost.

Many allowable business expenses continue to be paid during quiet periods. Expenses such as software subscriptions, accountancy fees and insurance often remain in place even when income is low.

From a tax perspective, what matters is whether the expense is incurred wholly and exclusively for the business.

Relevant life insurance is designed specifically to meet that test, assuming it is set up correctly.

You can read more about this in our guide:
Is relevant life insurance a business expense?

What happens if the company makes a loss?

The premiums the company pays on a relevant life policy are treated in the same way as other allowable business expenses, provided the policy meets the relevant HMRC conditions.

If the company makes a loss in a particular accounting period, it can still claim allowable expenses in the usual way. The resulting trading loss is dealt with under standard Corporation Tax rules, most commonly by being carried forward and offset against future profits.

Paying for relevant life insurance is therefore not a problem, even if profits are low or negative in a given year. What matters is that the company can afford to meet the premium payments.

Whether the company was profitable in earlier periods does not affect the tax treatment of the expense.

Cash flow matters more than accounting profit

For many directors, the primary concern is cash flow. A company can be technically profitable but still experience short-term cash flow issues, particularly during contract gaps.

If cash flow becomes difficult, most relevant life policies offer some flexibility. Cover can usually be reduced, premiums adjusted, or, in some cases, paused. This depends on the insurer and the policy’s structure.

This flexibility is often overlooked, leading directors to assume that once a policy is in place, it cannot be changed. In reality, policies can usually be adapted as circumstances change.

What if there is a gap between contracts?

It is common for contractors to experience periods with no income between assignments. During these gaps, the company may remain active and incur operating costs while the director prepares for the next assignment.

Relevant life insurance can typically continue during these periods, provided the company remains active and the director remains employed by the company.

What about if my company goes dormant?

If a company is formally dormant, it should not pay any ongoing business expenses, including insurance premiums.

You cannot fund a relevant life policy if your company is dormant.

Companies House treats a company as dormant only where it has had no “significant” transactions during the financial year (with limited exceptions such as Companies House filing fees). See: Dormant for Companies House.

However, if your company is active, not necessarily profitable, but has sufficient retained profits to fund a life policy, there is no issue.

Is relevant life only sensible when profits are strong

Relevant life insurance is often described as tax-efficient because premiums are paid from company funds rather than personal income. That does not mean it only works when profits are high.

For many directors, the decision is about personal protection rather than tax optimisation alone. Relevant life provides a death-in-service style benefit that can be valuable regardless of short-term trading performance.

If you are comparing relevant life to personal cover, our guide
relevant life vs personal life insurance
explains the practical differences.

When it may make sense to delay or review cover

There are situations where it is reasonable to pause or delay taking out a policy.

These include very early-stage companies with no established revenue, companies that are genuinely winding down, or companies with prolonged periods of inactivity.

In those cases, it is worth speaking with both your accountant and your insurance adviser to ensure the policy still fits your circumstances.

Relevant life insurance is not all-or-nothing. It should be treated as a flexible business benefit that evolves with the company.

If you are unsure whether relevant life is suitable for your situation, you may find our overview helpful:
What is relevant life insurance?