Relevant life insurance vs death in service
Relevant life insurance and death in service both provide a lump sum if an employee dies while covered.
Although they serve a similar purpose, they’re designed for different situations.
Death in service is normally an employee benefit provided under a group scheme. Relevant life insurance, by contrast, is an individual policy arranged by an employer for a specific employee or director.
For many owner-managed businesses and limited company directors, relevant life insurance offers a practical alternative where a traditional group death-in-service scheme isn’t suitable.
If you’re new to the subject, start with our guide to what relevant life insurance is.
Relevant life insurance is an individual policy arranged by an employer for one employee or director. Death in service is usually provided through a group employee benefits scheme. Both can provide tax-efficient life cover, but they are designed for different types of business.
What is death in service?
Death in service is an employee benefit that pays a lump sum if an employee dies while employed by the business.
It’s commonly offered by larger employers as part of a wider benefits package.
The amount paid is often a multiple of the employee’s salary, although the exact level of cover depends on the scheme.
What is relevant life insurance?
Relevant life insurance is an individual life insurance policy taken out by a company for a specific employee or director.
It was introduced to allow smaller employers to provide tax-efficient life cover without establishing a group death-in-service scheme.
Unlike a group arrangement, each policy is tailored to the individual.
Who are they designed for?
Death in service is generally aimed at businesses with multiple employees.
Relevant life insurance is particularly popular with:
- limited company directors
- consultants
- IT contractors
- professional practices
- small owner-managed companies
If your company has only one or two directors, a relevant life policy is often a simpler solution than setting up a group arrangement.
How do they compare?
| Feature | Relevant life insurance | Death in service |
|---|---|---|
| Type of cover | Individual policy | Group employee benefit |
| Who is covered? | One employee or director | Eligible employees |
| Suitable for small companies | Yes | Usually less practical |
| Trust normally required? | Yes | Yes |
| Employer pays premiums | Yes | Yes |
Are the tax benefits similar?
In many respects, yes.
Qualifying relevant life policies are normally designed to provide favourable tax treatment.
Premiums are often treated as an allowable business expense, are not normally a taxable benefit in kind and generally do not need to be reported on a P11D.
You can read more in:
- Tax benefits of relevant life insurance
- Is relevant life insurance a business expense?
- Does relevant life insurance appear on a P11D?
Which offers more flexibility?
Relevant life insurance usually offers greater flexibility.
Each policy is individually underwritten and can reflect the director’s age, remuneration and required level of cover.
Two directors in the same company can have completely different levels of protection.
We explain this in our guide to relevant life insurance for husband and wife directors.
What happens if you leave the company?
With both types of cover, protection generally ends when employment ends.
However, some relevant life policies can continue if suitable arrangements are made following a change in employment or company structure.
See what happens if you change companies for more information.
Which is better for limited company directors?
For many owner-managed businesses, relevant life insurance is often the more practical option.
It avoids the need to establish a group employee benefits scheme while still allowing the company to provide tax-efficient life cover for individual directors.
That doesn’t mean death in service is inferior. Businesses employing larger workforces may find a group arrangement more appropriate.
The right choice depends on the size of the business, the number of employees and the type of cover required.
Frequently asked questions
Is relevant life insurance the same as death in service?
No. They provide similar protection but are different types of arrangements. Relevant life insurance is an individual policy, while death in service is usually provided through a group employee benefits scheme.
Can a small limited company offer death in service?
Yes, but many smaller businesses choose relevant life insurance because it is designed for individual employees or directors.
Which is more tax efficient?
Both can provide favourable tax treatment when the relevant conditions are met.
Can directors have relevant life insurance instead of death in service?
Yes. This is one of the most common reasons relevant life insurance is used by owner-managed companies.
Get a quote
If you’re considering relevant life insurance for your limited company, you can request a quote or use our relevant life insurance calculator to estimate an appropriate level of cover.