How much does relevant life insurance cost for directors?
Relevant life insurance (RLI) can be a tax-efficient way to protect your company and its employees, but this doesn’t mean that the premiums are ‘cheap’.
In most cases, RLI premiums are priced broadly the same way as personal life insurance premiums.
The difference lies in the tax treatment of the premiums.
In this guide, we look at some of the typical costs of RLI cover and how the favourable tax treatment of premiums paid via the company reduces the true cost to directors.
For some more background, read this guide: What is relevant life insurance?
Typical monthly costs for relevant life insurance
The examples below are based on a non-smoker, office-based, level term assurance policy with no medical conditions, covering the policyholder until age 65.
£250,000 of cover
| Age | Typical monthly premium |
|---|---|
| 35 | £9 to £13 |
| 45 | £18 to £26 |
| 55 | £40 to £60 |
£500,000 of cover
| Age | Typical monthly premium |
|---|---|
| 35 | £16 to £22 |
| 45 | £32 to £45 |
| 55 | £75 to £110 |
£1,000,000 of cover
| Age | Typical monthly premium |
|---|---|
| 35 | £30 to £45 |
| 45 | £65 to £95 |
| 55 | £150 to £220 |
These are indicative prices, based on a wide sample of online sources. Premiums are based on your personal circumstances, subject to final underwriting criteria.
Why relevant life insurance often feels cheaper
Although premiums for both company-funded and personally-funded life cover are often similar, as we mentioned previously, they are funded differently.
With a relevant life policy, the limited company pays the premium and, when structured correctly, the premium is not treated as a Benefit in Kind for the employee or director.
This means there is no personal tax liability.
You can read more about this in HMRC’s Employment Income Manual: EIM15045.
An example
Assuming the company can offset the cost of premiums as an allowable business expense, it reduces the company’s Corporation Tax liability.
However, in many cases, particularly if the employee is a higher rate taxpayer, there are also savings to be made on the personal tax side.
In this example, we assume a monthly premium of £100.
If the policy is a personal life policy
The director pays the premium personally out of post-tax income.
To have £100 available each month, the director must earn more than £100 in gross income.
For a higher-rate taxpayer, £100 of net income typically requires around £167 of gross income.
For an additional-rate taxpayer, it is closer to £182. The exact figures depend on the marginal tax and National Insurance rates, but the principle remains the same.
The life insurance premium itself is not tax-deductible, so the full cost is met from taxed personal income.
If the policy is a relevant life policy
The limited company pays the £100 premium directly out of pre-tax income.
Provided the policy qualifies as a relevant life policy under HMRC rules, there is no Benefit in Kind charge on the director, and no need to report the cost on a P11D.
There is no Income Tax, employees’ NI, or employers’ NI on the premium.
Read HMRC’s stance in EIM15045.
If the premium is allowable as a business expense, the company may also obtain Corporation Tax relief.
At the starting 19% Corporation Tax rate (for profits of £50,000 or less), the effective company cost of a £100 premium is £81.
The combined effect is that the director does not need to extract additional salary or dividends to fund the cover.
That reduces exposure to Income Tax, dividend tax, and National Insurance that would otherwise apply.
Read more here: tax benefits of relevant life, and is relevant life a business expense?.
What influences the price of relevant life insurance?
Insurers price relevant life insurance using the same underwriting factors as personal term assurance.
- Age of employee at outset
- Smoking status
- Sum assured
- Policy term
- Medical history and disclosures
- Occupation risk class
There is also a relevant-life-specific constraint. Excepted group life policies must specify an age beyond which no death benefits are paid, and that age cannot exceed 75.
HMRC sets out this rule in the Insurance Policyholder Taxation Manual at IPTM7025.
How cover limits affect cost
Most insurers cap the amount of relevant life cover based on remuneration. Income multiples are commonly used, especially for higher sum assured amounts.
This can matter for directors paid a low salary, with the balance taken as dividends. Some insurers focus on PAYE earnings. Others take a broader view of remuneration, supported by evidence.
If you are unsure whether a relevant life policy is suitable in your situation, read who can take out a relevant life policy? and compare with relevant life vs personal life insurance.
Why headline quotes can be misleading
Illustrative quotes assume ideal circumstances.
In practice, underwriting often changes pricing for ordinary reasons, such as elevated blood pressure, a high BMI, cholesterol issues, or a past medical history.
Larger cover amounts usually involve more detailed underwriting, which is why pricing for £1 million of cover can vary significantly between individuals of the same age.
Other costs and practical considerations
Relevant life policies are normally written into a trust. The trust is usually provided as part of the policy and does not involve a separate fee, but it must be executed correctly.
We cover the mechanics of setting up a policy in our guide to trusts and relevant life policies.
Optional features such as indexation or life event options can increase premiums. These features are not free and should be chosen deliberately.
You can usually quickly narrow the true cost by choosing a realistic cover amount, being open about your medical history, and your annual remuneration.
Use our calculator and get a quote
For the full legal and HMRC framework behind the treatment of relevant life policies, see HMRC rules on relevant life insurance (excepted group life explained).