Can you add critical illness to a relevant life policy?

Most relevant life insurance policies provide life cover only. The policy pays out a lump sum if the insured person dies or is diagnosed with a terminal illness during employment. See also 12 key facts about relevant life insurance for a quick overview.

Why critical illness cover isn’t usually included

HMRC rules only allow a relevant life policy to qualify for the usual tax advantages if it’s set up wholly and exclusively for the purpose of providing death-in-service benefits. Adding critical illness cover would normally make it a different type of policy — one that no longer meets the tax criteria for Corporation Tax relief or exemption from benefit-in-kind charges. Read more in tax benefits of relevant life insurance and is relevant life a business expense?

Arranging critical illness cover separately

Many directors and key employees choose to take out a separate critical illness policy alongside their relevant life plan. This can be held personally or through the company, depending on your insurer’s terms and your accountant’s advice. The trust arrangement remains separate — see trusts and relevant life policies.

A standalone critical illness plan pays out if you’re diagnosed with a serious medical condition listed in the policy — such as cancer, heart attack or stroke — helping to protect your income and financial commitments while you recover. For broader income protection options, see IncomeProtectionHelp.co.uk.

Tax treatment

Unlike a qualifying relevant life policy, critical illness cover usually does not attract Corporation Tax relief, and the premiums may be treated as a benefit in kind if paid by the company. Your accountant can confirm the best structure for your situation. For reference, see how relevant life insurance setup differs.

Summary

You can’t normally add critical illness cover to a relevant life plan without losing its tax advantages, but you can arrange separate cover for extra protection. If your circumstances change — for example, you leave or close your company — see what happens if you leave your company for continuity options.

A specialist adviser, such as Broadbench, can quote for both and explain the tax implications for your company. For further detail, see the FAQs.